4. Material
Costs/ (Accounting)
Previous
Definition (Better)
The cost of materials may be determined in terms of cost per unit weight or
cost per unit volume. The benefit of cost volume can be seen by the following
simple example. In the design of the steel cantilevered rectangular beam
supporting certain load at its end, a maximum deflection is specified. Using
equations developed in mechanics of solids and assuming that the weight of the
beam can be neglected, we can determine an appropriate cross section of the
beam. Since all dimensions are known now, the volume of the beam can be
calculated, and if we know the cost of material per unit volume, we can easily
calculate the cost of the beam.
(Kalpakjian, S.,
Schmid, S. R., Manufacturing Engineering and Technology, 5th ed., p. 1249)
New
Definition
The cost of
materials includes not only the purchase price but also the cost of physical
loss of material, scrap, mishandling and over handling, purchasing too much,
paying too far in advance of usage, storage, labor in stores and purchasing
departments, loss due to obsolescence and additional handling charges and
transport costs as a result of inefficient scheduling, and purchasing
management.
(Adam, F., Sammon, D., The Enterprise Resource Planning Decade: Lessons
Learned and Issues for the Future, 2004, p. 24)
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