Direct material cost

Revenue expenditure includes the direct material costs and direct labor costs incurred in the manufac ture of a produc t, together with the associated overheads that include maintenance of the plant. Since these expenses are debits, the debit balance for a given accounting period is obtained by adding up the debit balances from each individual expenditure account. Similarly, since revenues from sales and other income are credits, the credit balance for a given accounting period is obtained by adding up the credit balances from each individual income or revenue account. 

Overheads in the chemical-process industries are commonly calculated as a percentage of (I) direct materials cost, (2) direct labor cost, or (3) prime or direct costs. Other methods of allocating overheads are on the basis of (I) plant area, (2) number of employees, (3) capital value, and (4) elec tric power. 

Let us consider the manufac ture of metal ornaments. The processing cost, exclusive of material, may vaiy veiy httle for a wide range of materials. However, the direct materials cost will be much greater for precious than for base metals. In this case, an overhead allocation on the basis of direct material costs could be veiy misleading, while one based on direct labor cost could be quite accurate. 

Example 19 Overhead in Two Dijferent Projects Let us consider a plant that can make either product A or product B. At normal capacity, the overhead cost is known to he 2.50 per unit. Product A has a direct materials cost of 8 per unit and a direct labor cost of 2 per unit. For simplicity, the prime cost is here taken as the sum of these two costs, i.e., 10 per unit. 

In Table 9-28, a correct overhead cost of 2.50 per unit at normal capacity is calculated by taking either 31.25 percent of the direct materials cost, 125 percent of the direct labor cost, or 25 percent of the prime cost. AU these methods give a total cost of 12.50 per unit and a profit of 1.50 per unit for a selling price of 14 per unit. 

Direct material cost Material price Material usage... 

Direct materials cost Direct labor cost Overhead cost Manufacturing cost Revenue from sales Gross profit... 

Variances Direct Material Cost Since the variance in direct material cost A is the difference between actual cost and stan-... 

By using the data of Table 9-41, let us calculate the direct materials cost and the standard direct materials cost as... 

In this case, the favorable direct-material-cost variance was achieved because of a lower unit price despite an inefficient material usage, which needs to be investigated. (There is no room for complacency since the lower unit price may well be temporary.)... 

Direct Material Costs — Major Equipment Motor — Induction Type Steam Turbine Driven Air Blower Motor Driven Air Blower One Stage Expander Driven Air Blower Two Stage Expander Driven Air Blower... 

From Eq. (9-219) we calculate the direct-material-cost variance as - 24,920 per period. This variance is favorable. However, by using the relations of Eq. (9-220) we calculate a direct-material-price variance... 

Reaction yield, a metric universally used by synthetic chemists to evaluate their success, does not include poor reaction mass efficiencies. The correspondingly significant waste of resource (mass or energy) may be an obvious consequence to some, but many do not think about the wasted resource and the expense that this represents from both a direct materials cost and a more comprehensive life cycle costing perspective. 

The term direct materials includes raw materials, purchased parts, standard commercial items and interdivisional transfers, and subcontracted items required for the design. Direct material cost is the cost of material used in the design. The cost should be significant enough to warrant the cost of estimating it as a direct cost. Some material, by virtue of the difficulty of computation and estimating, may be classified as either indirect or direct costs. The latter estimates are preferred. Paint material of irregularly shaped objects is an example of material that can be classified either way. 

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