How Do You Calculate Direct Materials Cost?

In order to make a profit, you need to know how much to charge for your products. In order to know how much to charge, you need to know how much it costs to make the product. The first step in determining a product cost is to calculate the direct material cost. These are the materials used in the assembly of the product. Materials are purchased from suppliers, made in-house or a combination of both. Gather your parts or materials list for each product for which you will be calculating direct material cost. Gather your material cost list or supplier cost advice. If you have not created a material cost list for your company, you can look at current invoices from suppliers for components, parts and raw materials. If you have not created a bill of material for each product, you will use the blueprint for each product and make your bill of materials (BOM) in a spreadsheet. Check your assembly lines, manufacturing areas, molding and stamping processes to confirm that the BOM or blueprint ... more

In order to make a profit you need to know how much to charge for your products. In order to know how much to charge you need to know how much the product cost you to make. The first step in determining a product cost is to calculate the direct material cost. These are the materials used in the assembly of the product. Materials are purchased from suppliers, made in-house, or a combination of both. Gather your parts or materials list for each product that you will be calculating direct material cost for and your material cost list or supplier cost advice. If you have not created a material cost list for your company, you can look at current invoices from suppliers for components, parts, and raw materials. If you have not created a bill of material for each product, you will use the blue print for each product and make your BOM in spreadsheet software. Check your assembly lines, manufacturing areas, molding, and stamping processes to confirm that the BOM or blueprint is correct. Due ... more