Question

Explain the difference between direct material and indirect material. Provide the journal entry (JE) for when $500 of (a) direct material is used in production, and (b) indirect material is used in production. JE must be in proper format with credits indented. Remember that we do not utilize "$" in the Journals and Ledgers.

Answer 1

DIRECT MATERIAL:

1. these are material which easily identified, measured and directly charged to the cost of production.

2. It is form as a part of finished product

3. Examples: leather for making shoes. Cotton for making cloths

Journal entry:

Particulars	Debit ($)	Credit ($)
WIP inventory a/c Dr	500
To Material control a/c		500

INDIRECT MATERIAL:

1. These are material which cannot be directly allocable to a particular cost centre or cost unit.

2. Which do not form a part of finished product

3. Examples: lubricant& cotton waste used for machinery. Threads used for cloth making.

Journal entry

Indirect material costs are recorded differently.

Particulars	Debit ($)	Credit ($)
Manufacturing overhead a/c Dr	500
To Material control a/c		500