Indirect materials are materials used in the production process that either cannot be easily traced to a specific product or it would be too time-consuming or costly to do so. These materials are typically minor items in terms of cost.
For example, in a manufacturing process, indirect materials might include items such as cleaning supplies, lubricants for machines, small tools, or screws and bolts. Although these materials are necessary for the production process, they do not become a part of the finished product directly, or it is impractical to trace their cost to specific products.
Indirect materials, along with indirect labor and other overhead costs, are part of the manufacturing overhead, which is allocated to each unit produced based on some method of cost allocation (such as labor hours or machine hours). This allocation is important for accurately determining the total cost of each product produced.
Example of Indirect Materials
Let’s consider a factory that produces wooden furniture.
- Direct Materials: These are the materials that can be directly traced to each piece of furniture produced. For instance, the wood used to make a table or the fabric used to upholster a chair are considered direct materials.
- Indirect Materials: These are materials used in the production process that can’t be directly traced to a specific piece of furniture.
- Cleaning Supplies: The factory uses a variety of cleaning supplies to maintain a clean working environment. These supplies support the production process, but you can’t trace the cost of the cleaning supplies to a specific piece of furniture.
- Small Tools and Hardware: Items like screwdrivers, hammers, nails, screws, and other small tools and hardware are essential for the manufacturing process. However, it’s often impractical to trace the cost of these items to a specific piece of furniture because they’re used across many different products and their individual cost is relatively small.
- Lubricants and Coolants: The factory uses various lubricants and coolants for the machines used in the production process. Again, these are necessary for the process, but their cost can’t be directly traced to a specific piece of furniture.
These indirect materials costs would be included in the factory’s overhead costs and allocated to each piece of furniture based on a cost driver like labor hours or machine hours. This helps determine the total production cost of each piece of furniture, which is important for pricing decisions and profitability analysis.