Direct materials cost - Accounting Media

Direct materials cost

Materials are physical commodities that enter into the making of a product. These are sometimes called store or raw materials. The term materials used in the cost accounting is not restricted to natural resources only: the finished products of one firm can he a raw material for another. For example, the cardboard or tin sheets manufactured by a firm would be raw material for a packaging -cases manufacturer.

Materials may be classified as direct or indirect with respect to a product manufactured. Direct materials are those which can be directly and conveniently identifies with the physical units of finished product: These materials really enter into, and become a part of the finished product. For example, leather used to manufacture a pair of shoes or wood used to make a chair or steel used to produce a interstellar are direct materials since they can be directly traced to respective finished products.

Indirect materials, on the other hand, are those materials that are used in the manufacturing operations, but do not become the part of a finished product. These goods cannot be identified with them. The examples of indirect materials are' cotton waste, lubricants, grease oil etc. Indirect materials are a part of factory or manufacturing overhead.

The distinctions between direct and indirect materials is not very rigid; it is based on practical and pragmatic grounds. Some materials like glue, nails, thread, screws are logically traceable to finished goods. But because of the impracticality of tracing these materials’ costs the it is more prudent to classify such costs as indirect materials cost.