Direct materials are the raw materials that become a part of the finished product in the manufacturing process. They are the physical inputs that can be directly attributed to the goods being produced.
For example, in a car manufacturing process, direct materials would include things like steel for the body, tires, the engine, the transmission, and the glass for the windows. Each of these items can be directly traced to the finished product and is a significant cost of producing that product.
In contrast, indirect materials cannot be easily traced to the finished product or do not become a part of the final product. These might include cleaning supplies used in the manufacturing facility, lubricants for machines, or small miscellaneous items like nuts and bolts. Indirect materials are generally included as part of manufacturing overhead, along with indirect labor and other indirect manufacturing costs.
Direct material cost is a crucial component of total manufacturing costs and is closely monitored in cost accounting. It influences the company’s pricing decisions, profitability analysis, and budgeting.
Example of a Direct Material
Let’s consider a company that manufactures wooden tables as an example.
In this case, the direct materials would include the wood used for the table top and legs, the glue used to hold the pieces together, the screws to secure parts, and the varnish applied for the finish. These materials can be directly traced to the finished tables, and their costs form a substantial part of the total cost of each table.
Suppose it takes:
- 30 feet of lumber costing $2 per foot
- A half-bottle of glue costing $2
- A packet of screws costing $1
- A quarter-bottle of varnish costing $3
The total direct material cost per table would be $67.
On the other hand, items like the saw blades used to cut the wood, sandpaper to smooth surfaces, or cleaning supplies to maintain the work area are considered indirect materials. While they’re necessary for the manufacturing process, they don’t become part of the finished tables and their costs cannot be traced to individual tables. These costs would be categorized as part of the manufacturing overhead.