Define direct and indirect materials and list the reasons why a large company would have two separate departments to manage the purchasing of each?

Direct materials
are those that are used directly in the production process and are reflected in the final
product. For example, timber would be a direct material in the production of furniture. In this
case, timber is the primary material and must be part of the final product. Further, the cost of
direct materials can be accurately identified and allocated to the cost of production.

Indirect materials are those that are
used in the production of the final product indirectly. They cannot be directly measured and
conveniently charged to the cost of production. For example, in furniture production, wood,
glue, and nails may be classified as indirect materials.

Why They Are Assigned To Different Departments

1. Cost implications: In most cases, direct materials are more costly than indirect
materials. Since the costs of direct materials can easily be calculated and ascertained, they
are usually charged to a cost centre or a work order.

2.
Quantities to be ordered: Indirect materials may not be purchased in large quantities. For this
reason, they are mostly treated as miscellaneous and charged to overhead accounts.

3. Cost determination: Indirect materials are not easily
quantifiable. Therefore, they cannot be purchased in bulk like direct materials.

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