Indirect Materials

Indirect Materials

See Also:
Indirect Labor
Audit Committee
Managed Sales And Use Tax Audit Programs
Mining the Balance Sheet for Working Capital
Inventory to Working Capital

Indirect Materials Definition

In accounting, the indirect materials definition is a category of indirect cost. Indirect materials are materials used in a production process, but they are not directly traceable to a cost object. Consider these costs as overhead costs. Then treat them accordingly.
[highlight]Download the free Know Your Economics guide to monitor what’s happening in your business. [/highlight]

Indirect Materials Example

It is not always easy to distinguish between direct and indirect materials. Some materials may be used in the production process or in the services provided; however, you would still consider them indirect because they are not monetarily significant or not conveniently traceable. Let’s look at an indirect materials example…
For example, spices added to a hot sauce during the production of the sauce. The spices are necessary for the recipe, but they are not easily traceable. Instead, consider those spices indirect materials and treat them as such.
Another simple example of this could be office supplies at a service company. In order to provide the service, you may need to have office supplies, such as pens, paper, and staplers. But these costs are not substantial enough and not directly traceable to the service provided. So they are treated as indirect material costs and part of overhead.

Conclusion

Treat indirect materials, like other indirect costs, as overhead. Either expense them in the period in which they are incurred, or allocate them to a cost object via a predetermined overhead rate. Want to check if your unit economics are sound?  Download your free guide here.
Indirect Materials, Indirect Materials Definition, Indirect Materials Example
[box]Strategic CFO Lab Member Extra
Access your Projections Execution Plan in SCFO Lab. The step-by-step plan to get ahead of your cash flow.
Click here to access your Execution Plan. Not a Lab Member?
Click here to learn more about SCFO Labs[/box]
Indirect Materials, Indirect Materials Definition, Indirect Materials Example

ARTICLES YOU MIGHT LIKE

Financial Ratios

See also:Quick Ratio AnalysisPrice to Book Value AnalysisPrice Earnings Growth Ratio AnalysisTime Interest Earned Ratio Analysis Use of Financial Ratios Financial Ratios are used to measure financial performance against standards. Analysts compare financial ratios to industry averages (benchmarking), industry standards or rules of thumbs and against internal trends (trends analysis). The most useful comparison when

Read More »

CPA’s are Specialized

The Difference in CPAs Looking back at my career I don’t know how many times I have introduced myself to someone and they ask, “Are you a CPA?” and I say yes. Then they tell me “you must be very busy with tax season” and I look at them with a bit of awe and

Read More »

Accounting VS. Bookkeeping

In our industry we often run into businesses that do not understand the difference between bookkeeping and accounting.  It is not the business owner’s fault. After all, they are in the business of making money for whatever service or product they sell.  But, to know if you are making any money you need to measure

Read More »

JOIN OUR NEXT SERIES

Financial Leadership Workshop

MARCH 28TH-31ST 2022

SHARE THIS ARTICLE
Share on facebook
Share on twitter
Share on linkedin

JOIN THE NEXT STRATEGIC CFO™ SERIES

Strategic CFO™ Financial Leadership Workshop
The Art of the CFO®

Days
Hours
Min
Sec

June 13th - 16th 2022