What is indirect material in cost accounting?
Every manufacturing process involves the use of several resources specifically materials and labor. The consumption of resources must be measured, recorded and allocated to determine manufactured product costs. This determination is the first step to several important decisions such as product pricing, profitability analysis, cost control etc. One of these major consumable resources is materials which include all parts, components or any items which serve as raw materials or input materials in the manufacturing process. Show
This article looks at meaning of and differences between two types of materials – direct materials and indirect materials. Direct materialsDirect materials are those items consumed in the production process, that can be easily identified and directly traced to the production of a specific product. They are generally the core materials required for manufacturing a product and form part of the final product. Example In a shoe manufacturing company, each type of shoe manufactured requires a specific quantity of say leather or suede, specific number of premanufactured soles. These materials thus have a direct one-to-one relation with the product manufactured and thus qualify as direct materials. Direct materials form part of the bill of materials prepared by a manufacturing entity which lists down comprehensively all materials that go towards manufacturing a specific product. This forms the basis of maintaining stock of direct materials and indenting for their time-to-time purchase. The cost of direct materials is directly allocated to the product manufactured without the need for any separate allocation basis or formula. Example Albert Inc. manufactures 3 different types of shoes – Leather shoes, Leather boots and rubber flats. Each pair of these require the following materials:
The cost of materials is:
Therefore, the direct material cost of each of the shoes manufactured by Albert Inc. is:
Indirect materials:Indirect materials are those materials that cannot be directly traced or corelated to the production of a specific product. Such materials are generally used in some aspect of the production process but do not necessarily become an identifiable part of the final manufactured product. Examples of indirect materials include machine oil, safety gear for factory workers, cleaning supplies, and stationery items etc. Indirect materials costs can be recorded in either of the following ways:
Difference between direct and indirect materials costThe eight key points of difference between direct and indirect materials cost have been detailed below: 1. Meaning
2. Traceability to specific product
3. Form part of final product
4. Allocation
5. Considered in bill of materials
6. Proportion of product cost
7. Grouping and position in cost sheet
8. Examples
Conclusion – direct vs indirect materials cost:Generally, both direct and indirect materials form part of the final product cost, either through direct attribution or through overhead allocation. It is essential that both of these costs are accurately measured, recorded and allocated because they will eventually impact the final product cost. Additionally, inventory management of both, especially of direct materials, is essential as any shortage can impact overall production supply or production efficiency. What is indirect material cost in cost accounting?Indirect Material Cost. It is an expense, which is included in Overhead Cost of manufacturing cost, and consists of subsidiary material cost, shop supplies cost, perishable tools and equipment cost. Here the material means the one indirectly or supplementarily consumed.
What is direct and indirect material in cost accounting?Meaning. Direct materials are those materials that are core to the production process and can be directly traced to the specific product manufactured. Indirect materials are those materials that are ancillary to the production process and cannot be directly traced or attributed to the production of a specific product.
What is indirect material in simple words?Definition of indirect material
: material (as tools, cleaning supplies, lubricating oil) used in manufacturing processes which does not become an integral part of the product and the cost of which is not identifiable with or directly chargeable to it — compare direct material.
What is meant by direct material and indirect material?Direct Materials Definition
Direct material costs are one of the costs associated with producing a product. Furthermore, direct materials are in contrast to indirect materials. Indirect materials are materials used to produce a product not clearly linked or traceable to the final product.
|