Indirect Materials

Indirect materials can be referred as materials that are used in the production and manufacturing process of a business but cannot be related directly to any product or some specific job within the business. They are not as worthy as to be counted in direct materials so they are maintain in another category known as indirect materials. They are consumed during the process of production or manufacturing but don’t become an integral part of the end product. Another reason of determining these materials as indirect materials is that because they are used in an unsubstantial quantity.

There are a number of different types and categories of the indirect materials including cleaning materials, safety equipment that can be disposed off after the usage, tools that are disposable and required only for the time being, fittings and fasteners, glues and other such materials, tape and paper bindings, oil or grease used for minor purposes.

There are two method of calculating the cost of indirect materials

• They are considered as manufacturing overheads and are counted in the cost of goods sold.
• The other method is to charge them as an expense that is incurred

Theoretically it is most accepted and accurate to calculate indirect materials as manufacturing overheads as cost of goods sold. If the cost of indirect materials is too small it’s better to count them as expense as incurred. In most of the businesses indirect materials are not added in inventory as formal record keeping system. Instead they are recorded using informal procedures and are ordered when required.

Other Related Accounting Articles:

• Similarities between Job Order and Process Costing System
• Comparing LIFO and FIFO methods of Inventory
• The Gross Profit Method of Inventory Accounting
• Internal Controls of an Inventory
• Just In Time Inventory
• Materials Ledger Card–Perpetual Inventory
• Materials and Inventory Cost Control
• Physical Inventory – Inventory Valuation
• Danger Level of Materials or Inventory Stock
• Dollar Value LIFO Method