Material Cost Calculation

Materials can be classified into 2 types:

1. Direct materials
2. Indirect materials

Direct Materials

These are those materials which when operated or processed in factory shops through various stages form the final useful shape of the main product or component part of the main product. These are also known as 'Productive materials'. Examples of Direct materials are wood for furniture, steel for bolts.

Indirect Materials

These are those materials which are essentially needed in various shops for helping the materials to be converted into the final useful shapes. Difference between direct and indirect forms of materials can be easily understood by the following example:

Suppose a person continuously working in milling machine shop is cutting gear teeth on cast iron blanks. Now the cast iron blank, of which the gear is made, will be the direct material while the coolant required for cooling the cutter, grease and lubricating oil needed for lubricating the machine, kerosene oil and cotton waste etc. needed for leaning the machine are known as indirect materials.

Calculation of Materials Cost

For the calculation of materials cost following procedure should be adopted:

a. Calculate the volume of each component by applying the mensuration. For the calculation of volume, necessary machining allowance must be added on the sides which are required to be machined.

b. Add the volume of all components to get the total volume of the product.

c. Multiply this volume by the density to get the weight of the material.

d. Multiply the cost per unit weight to the total weight of the material to get the cost of the material.

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