Managerial Accounting - Direct vs Indirect Materials and Labor

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[@MainStreetMcgreevys]

I appreciate this video so much. Thank you. It helped me a ton!

[@TschidaIndustries]

Thank you for this video, Patrick. I came for direct vs indirect labor and a good way to determine what is what and it seems the "not traceable" is the biggest clue? So based on that, if I have a person picking component parts for an assembly (but not assembling) would that be direct labor because I can tie their time directly to the job?

[@PatrickLeeCPA]

If a person is picking component parts for an assembly, I would consider that overhead since they are not working with the end product. Some could say, well, we need them to build the product and so I could see an argument for it to be considered direct labor as well. If all they did was pick components and that was vitally important to the production of the product, then direct labor, but if the reason for picking the components is the inefficiency of how they store the direct materials, I'd put that in overhead.

[@ryanmcauley1626]

Thank you

[@PatrickLeeCPA]

You are welcome. I hope my other videos are just as helpful!

[@abigaelaguba5332]

is freight in is direct material or indirect material?

[@PatrickLeeCPA]

If the freight is because of materials that are considered direct material then it is a direct material cost. If the material that is being bought is indirect, then it will be indirect material costs. Follow the main material cost. If that makes sense. Patrick

[@ryansanayhie7143]

Hi Patrick, so would you say that direct materials and direct labor are expensed in the period in which they are incurred?

[@PatrickLeeCPA]

Technically no, however, what we're saying is that we move the DM and DL into WIP in the period we use it. Be careful when you say expense. We don't actually expense them until we sell them. We're actually just moving from the one Inventory account to another. We're going from Raw Materials Inventory (DM) into Work In Process Inventory then Finished Goods Inventory and finally Cost of Goods Sold (Expense), when it is finally sold. Although I think you're on the right track, just a particular distinction between expense and moving inventory from one account to another. Hope that helps.

[@ryansanayhie7143]

Yes, that helps a lot actually. Thanks!