Direct Materials Inventory Definition

A direct materials inventory can be defined as direct materials on hand and awaiting use in the production process.

It is a list of the company’s raw materials that cannot be broken down into components. Direct materials are those items that become an integral part of the finished product. 

Reasons to Have a Direct Materials Inventory 

  1. A Direct materials inventory is necessary because it determines what materials need to be purchased or kept on hand.
  2. Direct materials inventory is necessary to inform production staff of what materials they need to work with.
  3. Direct materials are the starting point for many processes so it helps to know how much material you have versus how much you need. 

Direct Materials vs Indirect Materials

The primary difference between Direct materials and indirect materials is that Direct materials are raw materials whereas indirect are items that cannot be broken down into units or components.

Types of Direct Materials 

Direct materials include metals, minerals, chemicals, wood, plastics, fabrics, paper products among other things. 

They can be found in nature or they can be processed from another material. Direct materials are the source from which other products are created.

How to Create a Direct Material Inventory 

Step 1: Determine the types of direct material you have 

Step 2: Prepare a list of Direct materials available for use in the production process.

Step 3: Ensure that your list is accurate, be sure to include items that are in transit, awaiting receipt, or already received but not yet used.

Step 4: Account for any Direct materials that have been consumed during the last period.

Step 5:   Post changes, generate reports, maintain accuracy 

When to Use Direct Material Inventory 

A Direct materials inventory is used when Direct materials are needed to produce another product or service.

It can be helpful for production planning, purchasing, cost analysis, and controlling operations.

Benefits of Having a Direct Material Inventory 

The Direct materials inventory helps you to know what Direct materials are available. This provides a clear picture of where things stand with various Direct material items that may be subject to price fluctuation, short supply, or unexpected damage. 

It provides a good idea of the value of Direct materials on hand at any given time which can help you make budgetary decisions.

It helps you to know how much Direct material inventory commitment is necessary so that there are no disruptions in production activities due to insufficient Direct materials on hand.

Inventory Management Tips  

A Direct materials inventory is one of two inventories you should keep. The other is an indirect materials inventory. Direct materials and indirect materials should be kept in separate accounts within the accounting system

Direct and indirect material costs and quantities should be recorded in a Direct Materials Inventory register or spreadsheet to help you monitor utilization, quantity on hand, and the total value of Direct materials.

Inventory management tips provide helpful information about inventory items, record Direct material costs, and use Direct materials in production. 

Important Points to Note

Direct materials are raw materials. Direct materials become an integral part of the finished product. 

Direct material inventory is necessary to control Direct material usage and ensure that there are no disruptions in production due to insufficient Direct materials on hand. 

A Direct materials inventory can be used for budgeting, purchasing, cost analysis, and production planning purposes. 

Direct materials are raw materials needed for production. Direct material inventory is an accounting transaction that records Direct materials as assets that can be used to make products or meet other business needs.
Direct materials inventory aids in the control of Direct material usage and ensures that there are no disruptions in production due to insufficient Direct materials on hand.
Direct materials and indirect materials should be kept separate accounts within the accounting system. Inventory management tips provide helpful information about inventory items, record Direct material costs, and use Direct materials in production.
A Direct materials inventory is used when Direct materials are needed to produce another product or service. It can be helpful for production planning, purchasing, cost analysis, and controlling operations.
It provides a clear picture of where things stand with Direct materials that may be subject to price fluctuation, short supply, or unexpected damage so there are no disruptions in production activities due to insufficient Direct materials on hand.

True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.

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