What are Indirect Materials? Indirect materials are materials used in the production process but cannot be linked to a specific product or job. Alternatively, they may be used in such insubstantial quantities on a per-product basis that it is not worthwhile to track them as direct materials (which involves including them in the bill of materials). Thus, they are consumed as part of the production process but are not integrated into substantial amounts of a product or job.
Examples of indirect materials Car manufacturers require various materials to produce cars. The assembly machines that put the auto parts together during production require regular maintenance for the machines to run smoothly during production. The machine oil that maintains the equipment is an indirect material because it can't be traced directly to an individual car in production.
Examples of indirect materials include: Cleaning supplies Office supplies such as tape, glues, and adhesives Personal protective equipment, such as helmets and gloves Disposable tools Equipment rentals Spare parts for machinery Screws, nuts, and bolts Fitting and fasteners Oil
Indirect materials can be accounted for in one of two ways:
1. They are included in manufacturing overhead and are allocated to the cost of goods sold and ending inventory at the end of each reporting period based on some reasonable method of allocation.
2. They are charged to expenses as incurred.
Of the two accounting methods, inclusion in manufacturing overhead is considered more theoretically accurate, but if the amount of indirect materials is small, it is quite acceptable to instead charge them to expense as incurred.
Indirect materials are not usually tracked through a formal inventory record-keeping system. Instead, an informal system is used to determine when to order additional indirect materials.
