Materials and labour

Need to know

What you need to know

• Direct materials are integral to the final product and are included in the prime cost.
• Indirect materials are treated as a production overhead.
• The cost of materials includes purchase price plus delivery costs and import duties.
• Trade discounts reduce the cost of materials; settlement discounts are treated as 'other income'.

Explanation

Materials and labour

1. Direct materials are integral to the final product and are included in the prime cost.
2. Indirect materials are treated as a production overhead.
3. The cost of materials includes purchase price plus delivery costs and import duties.
4. Trade discounts reduce the cost of materials; settlement discounts are treated as 'other income'.