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Direct materials cost is the cost of direct materials that can be easily identified in the unit of production. 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 defined as whatever raw materials that are included or excluded from the final product. Thus, wasted materials, such as a circular hole that has been taken out from a rectangular sheet, and scraped products are also considered as direct materials. Direct materials are also called productive materials, raw materials, raw stock, stores and only materials without any description title. Indirect materials defined as materials that are consumed in the processing but are not part of the final product such as lubrication material for the machine that manufactures the product.

Direct Materials Cost Estimation:

Steps to estimate the direct material costs:

1. Find the total amount to be produced. This is usually noted as the order size.

2. Calculate the total amount of raw materials required to produce the order size.

3. Multiply that amount by the cost associated with the raw materials.

4. If there is a waste or scrap, its cost should be added to the costs in step 3.

5. If the waste or scrap can be sold at salvage value, this value should be subtracted from the costs in step 4.

References:

1. Phillip W. Gillet, Jr., J.D. notes, Chapter three.

2. Ranlod W. Hilton, Managerial Accounting, 4th edition, 1999.

3. Michael R. Kinney, Cecily A. Raiborn, Cost Accounting: Foundation and Evolution, 7th edition.