1. Direct material cost
The material of a product is the most important cost element in determining the cost price of a product. In most instances, material control is only seen as to prevent theft of material. Although theft is very important, it is only one part of control. In a broader sense, material control is looking at the investment in material stock, purchasing the material, storing the material and efficiently using the material.
Material cost can be divided into two groups:
- Direct material
- Indirect material
This can be considered as all raw materials that constitute a tangible part of the end product.
| Example:- Direct material
Direct material represents the wood used in furniture manufacturing, the steel used to manufacture window frames, the material used to manufacture ladies’ dresses and the leather for manufacturing handbags.
|In most cases, direct material constitutes the largest part of the manufacturing costs.|