What are indirect production costs?

Indirect production costs - also called overhead costs of production, factories or production costs - are those items that do not go directly towards produced goods or services. The company requires these costs to trigger the production process as a whole than to create one item. For example, types of indirect production costs include rent, depreciation for equipment or equipment and maintenance in addition to safety, quality control and small materials that are directed towards the production of all goods. Manager accountants must record these costs in the account and then allocate some of them each item produced. In short, these costs are one main group of total production costs.

All companies have some type of indirect production costs. In those companies that do not produce physical goods, these indirect costs bear the name of the general, sale and administrative expenses. Costs do not have a link to any goods or services in the company. Instead of nAid, resources supply to all departments and individuals working in business. Companies that seek to reduce costs often look at these indirect costs to find areas where cost reduction will save money without reducing the quality of the company's actions.

manufacturing companies tend to record indirect production costs to one account marked by production overhead. The balance in this account is never zero; There are always certain costs if the company produces goods. When a dose of goods passes through the production system, managerial accountants calculate the amount of indirect production costs to assign to these items. In some cases, the company can use a pre -determined overhead rate to use these costs. This rate represents the expected number of overheads.

predetermined speed of directing represents a standard amount of production overheads neededCH to create a single goods. For example, manager's accountants check the total estimated amount of production overheads needed to produce a specific number of goods. To determine the cost of the factory direction, the total price price-for example, a working hour or machine clock is necessary. The distribution of total production overheads leads the total expected amount of the cost driver to the necessary predetermined overhead rate. The allocation of this cost of the unit of all produced goods will move the factory overhead costs from the production overhead account for goods produced by the company.