When indirect materials are used, which account increases?

When indirect materials are used in the production process, they are charged to Manufacturing Overhead. This occurs because indirect materials are not directly traceable to specific products, unlike direct materials which are directly incorporated into the finished goods. Instead, indirect materials, such as glue, lubricants, or cleaning supplies, support the manufacturing process but do not become a part of the final product.

As a result, when these materials are consumed, the cost is recorded as an increase in the Manufacturing Overhead account. This account represents all costs incurred in the manufacturing process that cannot be directly traced to specific products, including indirect materials, salaries of maintenance staff, and utility costs for the production facility. By recording the use of indirect materials in Manufacturing Overhead, companies ensure that all manufacturing costs are appropriately captured and accounted for in the overall cost of goods manufactured.

This systematic approach helps in calculating the total cost of production and aids in financial reporting and decision-making related to pricing and budgeting. Understanding where indirect materials are recorded is essential for accurate managerial accounting practices.