The direct materials cost for an automobile manufacturer is the sum of all costs that are incurred during production. These costs include raw materials, machinery and labor. These costs can either be direct or indirect and come from various areas within an automobile manufacturer. Direct materials include parts, pipes, wheels, casings, body kits, engines, transmissions, chassis, tires, and bumpers.
When an enterprise divides up: the direct materials cost for the year it is producing, it is called the direct materials cost for an automobile manufacturer. This figure is derived by dividing the manufacturer’s direct costs for manufacturing by its overall total inventory. Many times, these costs are broken down even further by addressing specific items which have a very small impact on overall automobile sales but are nevertheless necessary for manufacturing. By examining this breakdown of individual cost categories, the direct materials cost for an automobile manufacturer can be easily determined. This information can then be used by management as a basis for determining whether savings can be identified and pursued.
The indirect direct materials: cost for an automobile manufacturer consists of those costs not addressed by the manufacturer in its initial planning stages. In many cases these include expenses such as labor and depreciation. These costs should also be included in an annual report submitted to the U.S. Department of Transportation for its Motor Carrier Safety inspection. The cost of producing these vehicles should also be examined by the inspection panel to ensure that they are within reasonable expected performance and cost limitations. The inclusion of these types of indirect costs makes the direct materials cost for an automobile manufacturer an underestimate of the actual cost.
There are several reasons: why a manufacturer may underestimate its direct materials cost. The first category is related to accounting practices. Many times, an automobile manufacturer will record one set of numbers relating to its direct materials cost for production and use those numbers to support its financial statements. The actual cost of producing the vehicle may be much higher than the reported price. The accounting process and the methods used to interpret the reported price can lead to a large degree of error.
Another reason why an automobile manufacturer to estimate: its direct materials cost is related to the difference between engineering and business expenses. While engineering costs may relate to the number of parts necessary to produce the vehicle, business expenses relate to the advertising expenses required to market the vehicle and the dealer fees. When the manufacturer applies the discount rate of ten percent to these various costs it can totally eliminate the estimated direct materials cost for production.
To determine the true direct materials: cost for an automobile manufacturer a company that examines the various materials used in the manufacturing of a vehicle can make a much more accurate determination of actual costs. In addition, an examination of indirect, direct materials cost can provide a firm understanding of the actual cost of producing the vehicle. The cost of producing vehicles can also be affected by the company’s ability to advertise and sell the vehicles. Direct material costs can be measured by an inspector or a manufacturing laboratory. Materials that are used in the assembly process will be one of the first items inspected. As the assembly process goes on, numerous other items such as wheels, belts, and tires will add to the overall direct materials cost of the vehicle.
