All expenses incurred in receiving and storing the material form part of the cost of materials. When the direct material that is used in the manufacture of finished goods is translated into financial terms, the resultant is direct material cost.
Direct material cost can be easily identified with a cost unit.
Direct material cost is the price per unit paid to the supplier with respect to items purchased from the supplier. It comprises of:
- Purchase of item
- Local taxes and duties
- Inward freight
- Cash discount
- Volume discount
- Trade discount
- Rebates, duty drawback, modvat and subsidies
- Packing expenses, delivery
- Joint purchase cost
- Extra/spare parts
- Cost of containers (in case of returnable containers, the difference between the charge for returnable containers and the sum refunded on return of containers) is taken as expense
- Provisional pricing of materials