Indirect materials are materials used in the production process, but which 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 in substantial amounts into a product or job. Examples of indirect materials are:
- Cleaning supplies
- Disposable safety equipment
- Disposable tools
- Fittings and fasteners
Indirect materials can be accounted for in one of two ways:
- They are included in manufacturing overhead, and are allocated to the cost of goods sold and ending inventory at the end of each accounting period based on some reasonable method of allocation.
- They are charged to expense 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.