Question

Explain the following:

Material Cost

Answer 1

Material cost refers to the cost of the substances from which the product is made. Materials enter the production process and form part of the finished product. For example, paper used in a book, plastic used in a ball pen and timber used in furniture are materials. Materials can be divided into two categories, as follows:

1. Direct Material: All materials that become an integral part of the finished product and that can be easily measured and directly charged to the product are called direct materials. The following are included in the direct material:
   1. any raw material, semi-finished item or component used for manufacturing a particular item, e.g., cloth in dressmaking;
   2. any material specifically purchased for manufacturing a particular product, e.g., colour for dyeing cloth;
   3. primary packing materials, e.g., bottles used in Coke or Pepsi.
2. Indirect Material: Indirect materials are those materials that cannot be directly assigned to a specific product but can be apportioned. Consumable stores, oil and waste, nails, and grease are examples of indirect materials. Such materials do not form an integral part of the finished product.