Direct materials cost the cost of direct materials which can be easily identified with the unit of production. For example, the cost of glass is a direct materials cost in light bulb manufacturing.
The manufacture of products or goods required material as the prime element. In general, these materials are divided into two categories. These categories are direct materials and indirect materials.
Direct materials are also called productive materials, raw materials, raw stock, stores and only materials without any descriptive title.
Direct materials cost estimation
Steps to
estimate
Estimation (or estimating) is the process of finding an estimate or approximation, which is a value that is usable for some purpose even if input data may be incomplete, uncertain, or unstable. The value is nonetheless usable because it is der ...
the direct material costs:
[Phillip W. Gillet, Jr., J.D. notes, Chapter three
]
#Find the total amount to be produced. This is usually noted as the order size.
#Calculate the total amount of raw materials required to produce the order size.
#Multiply that amount by the cost associated with the raw materials.
#If there is a
waste
Waste (or wastes) are unwanted or unusable materials. Waste is any substance discarded after primary use, or is worthless, defective and of no use. A by-product, by contrast is a joint product of relatively minor economic value. A waste prod ...
or
scrap
Scrap consists of Recycling, recyclable materials, usually metals, left over from product manufacturing and consumption, such as parts of vehicles, building supplies, and surplus materials. Unlike waste, scrap Waste valorization, has monetary ...
, its cost should be added to the costs in step 3.
#If the waste or scrap can be sold at
salvage value
''Residual value'' is one of the constituents of a leasing calculus or operation. It describes the future value of a good in terms of absolute value in monetary terms and it is sometimes abbreviated into a percentage of the initial price when the i ...
, this value should be subtracted from the costs in step 4.
See also
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Variance analysis (accounting)
In budgeting (or management accounting in general), a variance is the difference between a budgeted, planned, or standard cost and the actual amount incurred/sold. Variances can be computed for both costs and revenues.
The concept of variance i ...
*
Direct material total variance
In variance analysis (accounting) direct material total variance is the difference between the actual cost of actual number of units produced and its budgeted cost in terms of material. Direct material total variance can be divided into two com ...
*
Direct material price variance
In variance analysis (accounting) direct material price variance is the difference between the standard cost and the actual cost for the actual quantity of material purchased. It is one of the two components (the other is direct material usage v ...
*
Direct material usage variance
In variance analysis, direct material usage (efficiency, quantity) variance is the difference between the standard quantity of materials that should have been used for the number of units actually produced, and the actual quantity of materials used ...
References
{{DEFAULTSORT:Direct Materials Cost
Costs