por What is indirect raw material?
The indirect raw material is the material used in a manufacturer’s production process, but cannot be linked to a specific product or product batches being produced. For example, nails and glue in a carpentry.
Indirect raw materials can be thought of as the resources used to assemble direct raw materials into finished products. Alternatively, it may be used in such insubstantial quantities per product that it is not worth tracking as direct raw material, which would imply listing it in the bill of materials.
Therefore, it is consumed as part of the production process, but is not integrated in substantial quantities into a product or work.
It consists of expenses for auxiliary materials, expenses for shop supplies, and expenses for perishable equipment and tools. The cost of auxiliary materials includes the cost of fuel, lubricants, paints and packaging media.
Perishable tools and equipment expense refers to consumption expenses for tools, devices, and equipment with a useful life of one year or less.
Characteristics of the indirect raw material
These raw materials are usually small, cheap, and bought in large quantities.
They also don’t add much overall value to the product being produced. Therefore, these raw materials are rarely counted in inventory or cost of goods sold. Instead, they are simply loaded as factory supplies or workshop materials.
In accounting, indirect raw material is a category of indirect expense. Indirect materials are materials used in a production process, but cannot be directly assigned to a cost object. These expenses are considered as general expenses and are treated in this way accordingly. Indirect raw materials can be accounted for in the following two ways: 1) They are included in manufacturing overhead and allocated to cost of goods sold and ending inventory at the end of each reporting period, based on a reasonable allocation method . 2) They are charged to expenses as they are incurred.
Indirect raw materials are generally not tracked through a formal system of inventory records. Instead, an informal system is used to determine when to order additional indirect raw materials.
Differences between indirect raw material and direct raw material
Direct raw materials are materials that can be easily identified. They can also be easily measured and traced directly to the manufacture of a product.
In other words, direct raw materials can be conveniently measured and charged at cost of production. This type of material is also part of the finished product.
For example, wood is a direct raw material in a factory that produces furniture. In a shoe manufacturing company, leather is a direct raw material, and so is wool or cotton in a factory that produces clothing.
On the other hand, indirect raw materials cannot be conveniently identified and assigned to a unit of cost or production.
They are not part of a finished product. For example, wood is part of the furniture in a furniture factory. Not cleaning products, however, or nails or glue or paints.
Another example: Soap is used to clean the factory floor, but not to make furniture. Therefore, soap is an indirect material.
During the production process, indirect raw materials are consumed. However, they are not part of the finished product and cannot be linked to a specific job.
examples
The spices added to a hot sauce during the production of the sauce. The spices are necessary for the recipe, but they are not easy to trace. Instead, those spices are considered indirect raw materials and are treated as such.
Office supplies at a service company. In order to provide the service, office supplies such as pens, paper, paper clips and staples may be needed.
Bolts and nuts on an assembly line.
Cleaning supplies.
Disposable safety equipment.
Disposable tools.
Fittings and closures.
Glues and fats.
Fuel.
ribbons.
Any other material that is not incorporated into the product, but that its use in the manufacture of the product can be reasonably demonstrated, forming part of that production.
References
Indirect materials. Retrieved from accountingtools.com.
Indirect Materials Definition. Recovered from strategiccfo.com.