Direct materials cost sounds like an accounting term, and it is one, but the question behind it is usually very practical: what did the stuff inside this product actually cost me? There are two different answers depending on which question you are really asking, and mixing them up is where most spreadsheets go wrong.
What counts as a direct material
A direct material physically ends up in the finished product and can be traced to a specific unit of it. For a candle that is the wax, the fragrance oil, the wick and the jar. For a jar of face cream it is the oils, the actives, the preservative and the container.
An indirect material is used in production but cannot sensibly be traced to one unit: cleaning alcohol, gloves, a thermometer, paper towels. These are real costs, but they belong in overhead, not in direct materials. The test is simple. If you cannot say how much of it went into this unit without inventing a number, it is indirect.
Packaging sits in a grey area. A jar the product is sold in is usually treated as a direct material. An outer shipping box used only for online orders is often kept separate, because the same product sold at a market stall never incurs it.
Method 1: per unit, from a bill of materials
This is the version you want when pricing a product. Take every material in the recipe, multiply the quantity used by what that material actually costs per unit of measure, and add it up.
= sum of (quantity of each material × cost per unit of measure)
Worked through for a single 180 ml scented candle:
| Material | Quantity | Unit cost | Cost |
|---|---|---|---|
| Soy wax | 155 g | €0.0089 / g | €1.38 |
| Fragrance oil | 15 ml | €0.21 / ml | €3.15 |
| Wick | 1 pc | €0.07 / pc | €0.07 |
| Glass jar, 200 ml | 1 pc | €1.35 / pc | €1.35 |
| Lid | 1 pc | €0.15 / pc | €0.15 |
| Direct materials per unit | €6.10 | ||
The arithmetic is trivial. The hard part is the unit-cost column, and that is where the number quietly stops being true.
The candle pricing calculator does exactly this table in your browser: what you paid, the pack size, the amount used per unit, plus the waste allowance from further down this page and the platform fees if you sell on Etsy. Free, nothing to sign up for, nothing sent anywhere.
Method 2: per period, from your stock movements
This is the version an accountant asks for, and the one behind the phrase cost of direct materials used. It answers how much material the business consumed over a month or a quarter, and it needs no recipes at all.
= opening raw materials inventory
+ raw materials purchased
- closing raw materials inventory
Say the workshop started March with €4,200 of raw materials on the shelf, bought €6,800 more during the month, and counted €3,500 left at the end:
| Line | Amount |
|---|---|
| Opening raw materials inventory, 1 March | €4,200 |
| Purchases during March | + €6,800 |
| Closing raw materials inventory, 31 March | - €3,500 |
| Direct materials used in March | €7,500 |
Note what that figure includes: everything that left the shelf. Material that went into finished products, material spilled, material binned because a batch failed, and material that walked off unrecorded. That is a feature rather than a flaw. It is the honest total, and comparing it against what your recipes say should have been consumed is one of the fastest ways to discover you have a waste problem.
Which method to use
- Pricing a product, quoting a customer, deciding whether a line is worth making: method 1, per unit.
- Closing the books, filing accounts, working out cost of goods sold for a period: method 2, per period.
- Checking whether your recipes still reflect reality: both, then compare. The gap is your waste, your shrinkage, or an out-of-date bill of materials.
Four things that make the number wrong
1. You paid different prices for the same material
You bought wax at €8.50/kg in spring and €9.40/kg in autumn. Which price belongs in the calculation? Under FIFO you consume the oldest batch first and cost it at what that batch cost, which is what most small manufacturers want because it follows what physically happened. A weighted average is simpler, but it smooths over exactly the price movements you are trying to notice. Pick one and stay with it. Switching method mid-year makes your own margins incomparable.
2. You ignored waste
If 3% of the wax never makes it into a jar, the true material cost per candle is not €6.10. Building an allowance into the recipe is more honest than pretending the loss does not happen:
155 g ÷ (1 - 0.03) = 159.8 g, so €1.42 of wax rather than €1.38
Four cents on one candle. Across a thousand candles a month, that is €40 you thought you had.
3. Unit-of-measure mistakes
Fragrance oil bought by the kilogram and dosed by the millilitre. Sheet material bought by the square metre and used by the linear metre. Every conversion is a chance to be out by a factor of ten, and because the result still looks like a plausible number, nobody notices. This one class of error probably produces more wrong costs than everything else on this list combined.
4. Nobody updated the recipe
A slightly bigger jar, a little more fragrance, a second label. Each change is small enough that nobody thinks to update the costing sheet, and after a year the sheet describes a product you no longer make.
From direct materials to full product cost
Direct materials are the first line, not the whole answer. A complete product cost adds packaging, your labour, an allocated share of overhead, and the losses above. The rest of that stack is covered in how to calculate the true cost of a product.
Direct materials are worth getting right first, for one simple reason: for most physical products it is the largest line, and it is the only one that changes without you doing anything, every time a supplier changes their prices.
If you want the arithmetic laid out as formulas rather than prose - total manufacturing cost, cost per unit, cost of goods sold, and the margin-versus-markup trap - see the product cost formula reference.
How Masto Control calculates it
Masto Control keeps every purchase as its own batch at the price you actually paid, and consumes the oldest batch first when a production run completes. The per-unit figure comes out of the bill of materials automatically, at real batch prices rather than a number typed in once, and it moves when supplier prices move. Packaging can be attached per sales channel, since a posted order and a market stall need different boxing. For the per-period view, every intake, write-off and correction is recorded as its own stock movement, so the opening, purchases and closing figures in method 2 are already there rather than being reconstructed at month end.
To be clear about the boundary: what it calculates from your purchases is what physically went into the product. Labour reaches the total a different way - you set what an hour of a role or an operation costs, put the minutes on the card, and the two are multiplied out for you. Workshop overhead goes in as your own expense type, a fixed amount per unit or a percentage you decide. What the software will not do is time you: there is no stopwatch and no per-worker time log, so the minutes are your estimate. Materials and packaging are the parts that drift silently, and those are the parts worth automating.