Indirect material

Definition

Indirect materials are supplies used in the production process that cannot be easily traced to a specific product. They are part of manufacturing overhead and not directly included in the cost of goods sold.

5 Must Know Facts For Your Next Test

1. Indirect materials include items like lubricants, cleaning supplies, and small tools.
2. They are considered part of manufacturing overhead costs.
3. Indirect materials differ from direct materials which can be traced directly to a finished product.
4. In accounting, indirect materials are allocated to products using predetermined overhead rates.
5. Understanding indirect materials is crucial for accurate cost allocation and pricing strategies.

Review Questions

• What distinguishes indirect materials from direct materials?
• How are indirect materials accounted for in managerial accounting?
• Why is it important to allocate the cost of indirect materials correctly?

Related terms

Direct Materials: Directly traceable raw materials used in the production of a specific product.

Manufacturing Overhead: All manufacturing costs that are not direct labor or direct material costs.

Predetermined Overhead Rate: A rate used to allocate overhead costs to products based on estimated annual overhead and an allocation base such as machine hours or labor hours.