Accountants Material Cost Calculator
Calculate the cost of direct materials used in production from opening stock, purchases, delivery costs, returns, discounts and closing stock.
Overview
Use this Accountants Material Cost Calculator to estimate the direct cost of materials used in production. Enter opening inventory, purchases, inbound delivery costs, supplier returns, discounts, closing inventory, and completed units to review total material usage and the average cost per unit.
How it works
The calculation starts with opening materials inventory and adds net purchases, which are gross purchases less returns and supplier discounts. Direct inbound delivery costs are added because they are normally part of the cost of obtaining materials. The closing inventory value is then deducted to estimate materials used in production. Dividing that amount by completed units produced gives an average material cost per unit.
How to use this calculator
- 1Enter the value of opening raw-material inventory.
- 2Add gross materials purchases for the reporting period.
- 3Include inbound freight or delivery costs directly related to acquiring materials.
- 4Deduct purchase returns and supplier discounts.
- 5Enter the closing raw-material inventory value and units produced.
- 6Review direct materials used and the average material cost per unit.
Example Calculation
Opening materials inventory
$5,000
Materials purchases
$25,000
Delivery and freight costs
$1,200
Purchase returns
$500
Purchase discounts
$300
Closing materials inventory
$6,200
Units produced
1000
Direct materials used
$24,200.00
Net purchases are 24,200. Materials available for use are 30,400, and deducting closing inventory of 6,200 gives direct materials used of 24,200. The average material cost is 24.20 per completed unit.
Frequently asked questions
What is direct materials used?
Direct materials used is the value of raw materials consumed in making goods during a reporting period. It is calculated from opening inventory, net purchases and directly attributable delivery costs, less closing inventory.
How do you calculate material cost used in production?
Add opening materials inventory to net materials purchases and inbound delivery costs, then subtract closing materials inventory. Net purchases equal purchases less returns and purchase discounts.
Should freight be included in material cost?
Inbound freight and delivery costs that are directly attributable to obtaining materials are commonly included in material cost. Outbound delivery to customers is generally treated separately.
Why is closing inventory deducted?
Closing inventory represents materials still on hand at the end of the period. Deducting it prevents unused materials from being charged to the period's production cost.
What does material cost per unit show?
It shows the average direct materials cost allocated to each completed unit produced. It does not include direct labour, factory overheads, selling costs, or administrative costs.
Can I use this calculator for a service business?
It is most useful for manufacturing, construction, food production, and other businesses that consume identifiable physical materials. Service businesses may have little or no direct material cost.
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Assumptions and warnings
Assumptions
- All amounts are entered in the same currency and for the same reporting period.
- Opening and closing inventory are valued using a consistent inventory valuation method.
- Delivery costs included are directly attributable to obtaining materials.
- The material cost per unit is an average based on completed units produced.
- Results are estimates and do not include labour, manufacturing overhead, taxes, or financing costs.
Warnings
- This calculator provides an accounting estimate only and is not professional accounting or financial advice.
- Use inventory values and cost-allocation methods that are appropriate for your accounting policies and reporting requirements.