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Analysis of Direct Costs - Research Paper Example

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One of the costs that should be given special attention is collateral costs. These are costs that are incurred when acquiring the materials needed. Collateral costs could either…
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Analysis of Direct Costs
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Download file to see previous pages The other type of costs that is associated with direct material cost analysis, is the material related costs. These are costs incurred when a firm purchases excess materials to ensure there are adequate materials for production (Drury, 2007). These are costs that come about due to scrap, overruns, spoilage, and defective parts. Materials not used due to overruns, scrap or spoilage still have residual value or salvage value. A company might decide to sell the excess materials or use them for further production, either way adjustments have to be made to include the residual value (Drury, 2007). Where a residual value of the excess materials has been established, a firm might adjust direct material cost by subtracting the estimated residual value (Drury, 2007).
To avoid problems that arise when analyzing direct materials and direct costs, one should do a further analysis so as to identify ineffective and uneconomical practices (Drury, 2007). This should be done before any direct cost analysis is carried out so that one could be able ...Download file to see next pagesRead More
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