What are the direct cost of material?

Direct material costs are the amount of money that the company must spend on raw materials to create a product. In order to be part of the direct material costs, raw materials must be identified and used consistently. Most products have raw materials that are rarely used, such as screws used to create a cabinet, so they are not part of these costs due to their lower use. Businesses usually need this number to know how much the product costs to earn, so they know how much they charge and whether they benefit. For example, raw materials seamstresses will be fabrics used to make clothes. Although the term 'raw material' may mean that materials are raw and natural or unprocessed, they may not be. Companies that use a large amount of plastic would consider it a raw material, simply because it is an essential element of their final product.

One aspects needed to include raw materials in direct material costs is whether the materials are easily identifiable. E.gFor example, the dye can be considered as direct raw materials for textile manufacturers, but the ingredients that make up the dye are not. This is because the ingredients are not easily identifiable and the company can buy a dye from different suppliers who create their dyes in different ways. Another aspect of the raw materials of direct ingredients is that they are used consistently.

raw materials that are rarely used, or those that make up a small part of the final product are often not considered part of direct material costs. When the company creates a product package, the ink will be considered between these costs used for printing and cardboard for the box, but the tape or adhesive used to seal the packaging may not be. This is because, although we rarely increase raw materials increase the price of the product, the increase is considered insignificant compared to other commonly used materials.

Direct cost of material is most often used to determine the price of the product, except for work and transport costs. If material costs are mFoot higher than work and other costs can also be used as a basis for determining the sale price of the product. Another use for this cost measurement is to find out whether the company earns money back on sale.