 Hello in this lecture we will define direct materials according to fundamental accounting principles while the 22nd edition the definition of direct materials is raw material that physically becomes part of the product and is clearly identified with specific products or batches of products. Support accounting instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course each course then organized in a logical reasonable fashion making it much more easy to find what you need then can be done on a YouTube page we also include added resources such as excel practice problems pdf files and more like quickbooks backup files when applicable so once again click the link below for a free month membership to our website and all the content on it when we think about direct materials we're often thinking about a manufacturing company a company that manufactures inventory processes inventory and we're thinking about how we can break out the costs of that inventory within the manufacturing process one way to do that one way to think about all inventory is materials and labor and overhead oftentimes when we consider inventory we only think about the raw materials and we don't think about the labor and the overhead which kind of makes sense if we're buying the materials the inventory from a third party and we don't see the labor and the overhead we generally think of something like a tablet like a bunch of raw materials that are put together however it's important to note that somewhere in the production process of course a huge piece of the cost the value of that inventory is the direct labor the overhead the things needed to convert the raw materials to the end product being the tablet in this case materials here would include things like the materials for plastic and the metals that would be involved those are things that would be physically part of the inventory as opposed to the labor that would be involved and be part of the value be part of the cost but of course wouldn't be physically part of the end product of the inventory and then we have the overhead another conversion cost again included in the price of the inventory however not actually physically part of the inventory