Thursday, October 23, 2014

What is direct material? definition and meaning

Direct material is the material which can be conveniently identified and traceable. it refers to material out of which the product is manufactured, for example, leather-shoes are produced out of leather, butter is produced out of milk, steel utensils are produced out of stainless steel and many more example could be.Thus, leather, milk, and stainless steel are the direct materials for the manufacture of shoes, butter and steel utensils respectively. More than one material could be directly required for a production and it depends on production.
Direct materials are measured using two variances, which are:
Material yield variance-This is the difference between the actual amount of material used and the standard amount expected to be used, multiplied by the standard cost of the materials.
Purchase price variance- This is the difference between the actual price paid to buy an item and its standard price, multiplied by the actual number of units purchased.