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What are direct materials?

Harold Averkamp, CPA, MBA

Definition of Direct Materials

Direct materials are defined as:

  • Traceable matter that is converted by a manufacturer into products
  • Part of manufacturer’s production costs
  • A variable cost of a manufactured product
  • Part of a manufacturer’s inventory cost (along with the costs of direct labor and manufacturing overhead)
  • A prime cost

The costs of direct materials are reported in the financial statements based on where they are:

  • Raw materials not yet in production are reported/disclosed as raw materials inventory on the manufacturer’s balance sheet
  • Raw materials in the production area but the products are not yet completed, are included in the cost of the work-in-process inventory
  • Raw materials in completed products that are not yet sold, are included in the cost of the finished goods inventory on the balance sheet
  • Raw materials in products that are completed and sold, are included in the cost of goods sold on the income statement

Examples of Raw Materials

The direct materials for a bakery’s products will likely be flour, sugar, eggs, milk, vegetable oil, spices, and other ingredients listed in the bakery’s recipes.

The direct materials for a manufactured product will appear in each product’s bill of materials.

Note: A manufacturer’s indirect materials such as lubricants and other manufacturing supplies will be allocated to products along with other costs that are part of manufacturing overhead.

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on

Learn More About Harold

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