<\/span><\/h3>\nDirect material cost<\/b> (Direct Materials Cost) is the total cost related to the purchase and use of raw materials, direct materials to produce, manufacture products or perform the business's services. These costs include the cost of purchasing raw materials, transportation costs, storage and processing of raw materials before they are put into production.<\/p>\n
Because of its direct relevance to the product or service, direct material cost<\/b> can be clearly identified and accurately allocated to each unit of product or service.<\/p>\n
Related costs incurred:<\/b><\/p>\n\n- Raw materials<\/b>: These are basic materials such as metal, wood, plastic\u2026 used in the production process.<\/li>\n
- Fuel<\/b>: Fuels needed for the production process, such as electricity, gas, oil... are used directly in production activities.<\/li>\n
- Shipping and storage costs<\/b>: The costs of transporting raw materials from suppliers to the company's warehouse are also included in direct material costs.<\/li>\n<\/ul>\n
Refer to Circular 200\/2014\/TT-BTC: <\/b>According to Circular 200\/2014\/TT-BTC<\/b>, direct material costs are costs that can be allocated directly to a product or service without having to be estimated or allocated across multiple criteria like indirect costs. This means that businesses can easily calculate this cost for each product they produce.<\/p>\n<\/span>1.2 Direct calculation<\/b><\/span><\/h3>\nOne of the important features of direct material cost<\/b> can be specifically identified and allocated to each unit of product or service. For example, in a production line, the cost of raw materials for each product would be calculated based on the quantity of raw materials consumed in the production of that product.<\/p>\n<\/span>1.3 Distinguish from indirect material costs<\/b><\/span><\/h3>\nIt is important to distinguish direct material cost<\/b> with indirect material costs<\/b>While direct costs can be easily allocated to individual products or services, indirect costs cannot be specifically allocated. These costs include items such as factory management costs, equipment maintenance costs, and manufacturing overhead.<\/p>\n<\/span>1.4 Important role<\/b><\/span><\/h3>\nDirect material cost<\/b> often accounts for a large proportion of total production costs and plays an important role in determining product cost<\/b>. Good control of this cost helps businesses optimize profits, improve production efficiency and determine reasonable selling prices for their products. If the cost of direct materials is too high, the cost of products will increase, affecting the competitiveness of businesses in the market.<\/p>\n
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<\/span>2. Classification of direct material costs<\/span><\/h2>\nDirect material costs are an important part of determining product cost. These are the costs that businesses have to pay to purchase raw materials, and these costs are directly related to the product manufacturing process. Classifying raw material costs helps businesses easily control costs and optimize the production process. Below are the types of direct material costs:<\/p>\n
<\/span>2.1 Main raw material costs:<\/b><\/span><\/h3>\n\n- Concept:<\/b> Main material costs are raw materials, materials, or purchased semi-finished products, structural materials\u2026 that make up the main entity of the product. These are the basic components that make up the finished product.<\/li>\n
- Cost and management standards:<\/b> The cost of main raw materials is clearly established, making it easy for businesses to monitor and control. Regular management of main raw material costs will help optimize production efficiency and reduce waste.<\/li>\n
- Notes when calculating costs:<\/b> When calculating the cost of primary materials, only the value of the actual materials used in the production process is taken into account. This means that only the materials used to create the final product are included in the cost.<\/li>\n<\/ul>\n
<\/span>2.2 Cost of auxiliary materials (other materials):<\/b><\/span><\/h3>\n\n- Concept:<\/b> The cost of auxiliary materials is the materials combined with the main materials to change the color, shape, increase quality, aesthetics, or stimulate customer tastes. Auxiliary materials can also help improve production operations, ensuring the production process runs smoothly.<\/li>\n
- Characteristic:<\/b> Although not the main ingredient of the product, auxiliary materials play an important role in increasing the value of the product, thereby increasing competitiveness in the market. For example, in the F&B industry, spices and flavor enhancers for dishes are also auxiliary materials.<\/li>\n<\/ul>\n
<\/span>2.3 Fuel costs:<\/b><\/span><\/h3>\n\n- Concept:<\/b> Fuel costs are the costs of materials that provide energy for the production process. This could be electricity, gasoline, gas, or other fuels used in the production process.<\/li>\n
- Characteristic:<\/b> Fuel costs are less common than other raw material costs but are very important for specific manufacturing businesses, such as construction, bridges, or large-scale industrial production. Controlling fuel costs helps businesses reduce production costs and improve operating efficiency.<\/li>\n<\/ul>\n
Understanding and classifying What is direct material cost?<\/b> helps businesses, especially accounting departments and business owners, to calculate and manage production costs more easily. This not only helps to strictly control the budget but also helps to make reasonable production decisions, save costs and optimize profits.<\/p>\n
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<\/span>3. Accounting for direct material costs<\/span><\/h2>\nCorrect and complete accounting of direct material costs not only helps businesses determine the exact cost, but also supports effective management of materials, avoiding waste in the production process. Below is a method of accounting for direct material costs for businesses:<\/p>\n
<\/span>3.1 Account 621 \u2013 Direct material and raw material costs<\/b><\/span><\/h3>\nIntended use:<\/b><\/p>\n
Account 621 is used to reflect the cost of raw materials and supplies used directly in the production of products or provision of services of the enterprise.<\/p>\n
Accounting principles:<\/b><\/p>\n\n- Reflects actual costs:<\/b> Record the actual value of raw materials and supplies used directly during the period.<\/li>\n
- Cost transfer:<\/b> At the end of the period, transfer costs to the appropriate account such as account 154 (Work in progress) or account 631 (Production cost).<\/li>\n
- Handling of Overcharges:<\/b> Raw material costs exceeding the normal level are transferred to account 632 (Cost of goods sold).<\/li>\n<\/ul>\n
Content and structure of account 621:<\/b><\/p>\n\n- Debit side:<\/b> Record the actual value of raw materials and supplies used directly during the period.<\/li>\n
- Creditor:<\/b>\n