Material Cost

 

In product cost estimation and costing material cost play a significant role. It directly influence price of a product.

Material cost

Aim of Material cost estimation:

1. Record material expenditure and knowledge of raw material market price.
2. Compare actual expanses and raw material rate with cost considered during estimation on regular interval.
3. Need to estimate accurate material cost. Low material estimation will reduce profit margin while high material estimation increase price of product. 
4. Minimize scrap with proper material utilization to increase profit margin.
5. This provide basis to revise material cost of existing part as well as new product cost estimation

Material cost divided in two type:

1. Direct Material cost &
2. Indirect Material cost

Direct Material Cost:

A direct material is one which directly processed and converted into salable product and the amount paid for direct material in known as direct material cost. 

Example of Direct material cost: Mild steel Plate, Rod, Angle, Beam, Paint, Plastic sheet etc.

Indirect Material Cost:

An indirect material is one which directly not used in the product but necessary for the production process and the amount paid for indirect material in known as indirect material cost. 

Example of indirect material cost: Cotton waste, Grease, oil, cutter, coolant, hand gloves etc.

Procedure to calculate Direct Material cost:

1. Prepare Bill of material with Drawing no., Qty and Raw material details. 
2. Ensure availability of all part drawing or part sample.
3. Ensure availability of drawing in hard and soft copy format as per requirement.
4. Generally part drawing shows only finish dimension and finish weight so an estimator must have knowledge of various allowance for actual input weight calculation.
5. Calculate input weight of each part (Example: unit in kg).
6. Collect rate of raw material (Example: unit in Rs/kg).
7. Calculate cost of each part (in Rs.) by multiply (Weight*Rate*Qty.)
8. Calculate direct material cost by adding each cost.

1. Refer this link for how to calculate weight of Finish part
2. Refer this link for Indirect material cost
   

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Milan Tomic

Hi. I’m Designer of Blog Magic. I’m CEO/Founder of ThemeXpose. I’m Creative Art Director, Web Designer, UI/UX Designer, Interaction Designer, Industrial Designer, Web Developer, Business Enthusiast, StartUp Enthusiast, Speaker, Writer and Photographer. Inspired to make things looks better.

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