Direct vs Indirect materials

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  • In a manufacturing operation, direct materials are those which are changed in form through processing, machining, etc., and become an integral part of the end product. Indirect materials, often referred to as factory supplies, are auxiliary to the processing or machining operations and do not become an essential part of the end product. For example cotton is direct material for making shirts, as leather is for making shoes. Direct and Indirect Materials has effects on accounting. So, cost accountants should differentiate Direct and Indirect Materials while accounting for materials. Two ways of accounting for the cost of supplies or indirect Materials are: (1) as a direct departmental charge or (2) as a charge to inventories

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