What is Material Cost?
Material Cost
The cost of materials used to make a product.
What it means
The material cost is calculated by multiplying the quantity written in the BOM by the unit price of each material. Parts that you make yourself are calculated based on the cost of the materials that go into the part.
Making a product also costs human labor, equipment, and electricity. The material cost is based on just the materials.
At the pen factory
One black ballpoint pen costs 195 won, including 80 won for the barrel, 30 won for the cap, 10 won for the spring, 55 won for the refill, and 20 won for the packaging box (1/10 of the 200 won price).
Why it matters
You can find out how much you should sell one pen for and how much a bad pen costs you.