# Direct Material Cost
## What is Direct Material?
Direct Material is the cost of physical commodities which are used to make the final product and can be directly attributable to it.
Example: Handle, Net, Wheels used in a CHAIR.
## How to Identify Direct Material
Use this simple test:
- If the physical product is used only for one single product, then it is direct material.
- Otherwise, it is not direct material (it would be indirect material).
## How to Calculate Cost of Direct Material
| Particulars | Amount (₹) |
|---|---|
| Opening stock of Raw material | xx |
| Add: Cost of material purchased | xx |
| Add: Freight Inwards | xx |
| Add: Insurance and other direct expenses | xx |
| Add: Any tax (not eligible for ITC) | xx |
| Less: Trade discount | (xx) |
| Less: Abnormal loss | (xx) |
| Less: Sale amount of scrap of RM | (xx) |
| Less: Closing stock of Raw material | (xx) |
| DIRECT MATERIAL COST | xxx |
## Key Points to Remember
- Freight inwards (carriage on purchases) is added; freight outwards is NOT.
- Trade discount is deducted before arriving at material cost.
- Abnormal loss is excluded from cost (treated as a loss in P&L).
- Scrap from raw material reduces material cost.