What Is Indirect Cost Allocation?

Indirect costs are a symmetry of "direct costs." Production costs that cannot be easily targeted. That is, the cost incurred is related to a variety of products or services. Indirect costs need to be collected first, and then indirectly objectified according to certain standards. ^[1]

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Indirect and direct costs

Refers to

It refers to the expenses that can be directly included in a cost calculation object when the production expenses occur. Whether an expense is directly included in costs depends on whether the expense can be directly related to a cost calculation object and whether it is convenient to be directly included in the cost calculation object. Raw materials, spare parts and accessories consumed during the production and operation of the enterprise

Indirect costs I. Allocation of indirect costs

The costing of the developed product is performed under the manufacturing cost method, not the full cost method. There are four methods for allocating common costs and indirect costs that cannot distinguish the burden object:

Indirect Costs

This method is generally applicable to the allocation of land costs.

The so-called floor area method refers to the allocation based on the proportion of the area occupied by development cost objects to the total area of development land. According to different development methods:

1. For one-time development, the area allocated by a certain cost object to the total area occupied by all cost objects will be allocated.

2. In the case of development in stages, first allocate according to the proportion of the area of all cost objects in the current development area, and then allocate according to the proportion of the area of a certain cost object .

3. The area that should be borne by all cost objects during the period is the area of development land minus the area that should be shared by the cost objects in each period.

Indirect costs III. Floor area method

This method is generally applicable to the allocation of public ancillary facilities costs (referred to as separate transition cost accounting).

The so-called construction area method refers to the allocation based on the proportion of the construction area of the development cost object to the total construction area of the development land. According to different development methods:

1. For one-time development, the allocation is based on the ratio of the construction area of a certain cost object to the construction area of all cost objects.

2. In the case of staged development, first allocate the cost target construction area to the planned construction area of the development land during the period, and then allocate the cost target construction area to the period cost object's total construction area.

Indirect costs 4. Direct cost method

This method is applicable to the allocation of borrowing costs.

The so-called direct cost method refers to the allocation of the direct development costs of a certain cost object to the direct development costs of all cost objects during the period.

Indirect costs V. Budget cost method

This method is applicable to the allocation of borrowing costs.

The so-called budget cost method refers to the allocation of the budget cost of a certain cost object to the budget cost of all cost objects during the period.

In addition to the allocation of land costs, public ancillary facilities, and borrowing costs as described above, these four methods must be followed. Enterprises can choose other allocation methods for cost items, and enterprises have greater freedom of choice.

In particular, once the cost allocation method is determined, it cannot be changed at will, and the principle of consistency should be followed. If it is really necessary to change, the consent of the competent tax authority must be obtained.

Apportionment method

Allocation of overhead costs

The factor costs of an enterprise are classified into direct production costs and indirect production costs according to the relationship with the production process. According to the method of calculating product cost, it is classified into direct cost and indirect cost. Direct costs may be directly charged or indirectly charged. The opposite is also true.

Directly factored element costs are directly credited to a certain product. The key to indirect factor cost allocation is to find a reasonable allocation standard. Reasonable distribution standards are closely related to the costs allocated, so the distribution results are more accurate and reasonable, and the information should be easier to obtain and the calculation should be easier. There are mainly three types of allocation standards that are indirectly accounted for expenses: 1 Outcome categories: such as product weight, volume, output, output value, etc .; 2 Consumption categories: such as production hours, wages of production workers, machine hours, and raw material consumption. 3 Quota categories: such as fixed consumption and fixed expenses.

When allocating, first calculate the cost allocation rate, that is, the amount of expenses that should be borne by each unit allocation standard. Then multiply the distribution standard amount of various products by the cost allocation rate to obtain the indirect crediting factor costs that should be allocated for each product.

Accounting of department costs

Departmental expenses refer to the expenses incurred by the production department in which the enterprise provides products, labor services for the production of commodity products, or directly engages in the management of the production organization. Including auxiliary production costs and manufacturing costs.

The manufacturing costs incurred in the auxiliary production workshop can be aggregated separately through the Manufacturing Expenses ×× Workshop account, or they can be directly included in the auxiliary production cost account. Students should think carefully about the account format of the two methods.

The allocation of auxiliary production costs can be divided into two cases: according to the characteristics of auxiliary production workshop production, it can basically be divided into two types, that is, productive production and labor production. Productive production, such as self-made materials, tools, molds, etc., is characterized by the production and consumption of products can be distributed at different points in time. And labor production cannot be interrupted in production and consumption, and must be carried out simultaneously. Such as power supply, maintenance, transportation, etc.

For the auxiliary production cost of productive production, the unit cost of its product can be calculated first, and then allocated according to the consumption cost of each department. Its accounting entries are:

Borrowed when entering the warehouse: ×× Inventory

Loan: auxiliary production costs

When receiving: Borrow: ×× expense or cost

Loan: ×× Inventory Borrowing: Amount of Red Letter of Production Cost

Loan: Amount in red for manufacturing expenses

Accounting for production losses

Loss of production refers to the capital expenditure inevitably incurred in order to obtain qualified products under normal production. It mainly includes two parts: loss of waste and loss of shutdown. Of these two losses, except for personal liability accidents and abnormal losses, the rest must be borne by the cost of the same product or similar qualified product produced in the current period.

1 Loss of waste products refers to the production cost of non-repairable waste products and the cost of repairable waste products found during the production process, after deducting the value of recovered waste residues and the net loss of receivables.

It should be noted that the "Three Guarantees" loss occurred after the implementation of the Three Guarantees (refund, repair, replacement) of the products; the loss of moldy deterioration caused by poor storage after the products were stored in the warehouse; The price loss of non-conforming products (defective products) that can be sold at reduced prices without rework is not a loss of waste. The first two items are included in the management expenses, and the price reduction losses shall be reflected in the calculation of the current profit and loss.

The calculation of waste loss should be set up for the "loss loss" account. The repair cost of repairable waste is directly included in this account, and the production cost of non-repairable waste should be carried forward from the production cost account and included in production cost. Because the loss of waste is a part of the scope of cost, after calculating the actual cost loss, it should be transferred to the production cost account.

2 Stoppage loss refers to the entire cost incurred during the stoppage period of the production workshop or a team in the workshop. Including raw material expenses, wages and welfare expenses and manufacturing expenses incurred during the shutdown. The compensation that should be borne by the negligent unit or the insurance company shall be deducted from the loss of stoppage.

In order to simplify the accounting work, if the stoppage is less than one working day, the stoppage loss is generally not calculated.

Work in Process Costing

For example, a company produces two products, one of which is completed that month and one is in production. The total labor cost is 1500 yuan. The product processing level is 50%. Since labor costs are incurred one after another, and because of the processing level of an in-process product, it is only 50%, so the labor cost allocated to it is only 50% of the finished product. So the equivalent output of the product is 1 × 50%. In other words, one product in process is equivalent to half a finished product.

Please note that in actual work, some costs are incurred one after another, and some costs are not incurred one after another. Then for the successive occurrence and cost allocation, the equivalent output of the work in process can be calculated according to the completion degree, and for the non-continuous expense allocation, the equivalent output cannot be calculated according to the completion degree. For example, some companies' raw materials are often invested in all raw materials at the beginning of production. Then, regardless of the degree of completion of the product, the material cost to be shared is the same as the finished product. There are also some materials that are put in at one time in other processes. How can I calculate the equivalent output of the work in process for allocating these materials? Students must think deeply.

In addition, since the production of products in actual work is often divided into many processes or processing steps, the processing degree of these products in different processing steps distributed in this step is not equal to the processing degree of the finished product. How to calculate a certain process The completion rate of the process in the product, the students must also deeply understand.

1 Equivalent production method: The so-called equivalent output of the work in process is the number of finished products that have been completed according to their degree of completion or input.

2 Quota ratio method: It refers to a method for enterprises to allocate cost items according to the proportion of the finished product and the end-of-month in-product fixed consumption or fixed cost. The basic idea is to first calculate the cost to be allocated for each unit quota, that is, the cost allocation rate, and then multiply the cost allocation rate by the quota of the finished product or work in process to calculate the production costs of the finished product and the work in process respectively.

3 Pricing method based on fixed cost: refers to a method of calculating the production cost of work in progress at the end of the month based on its quantity and the unit fixed cost of work in progress approved in advance. The characteristic of this method is that the difference between the actual cost of the work in process and the fixed cost is passed on to the finished product, so it is not reasonable to adopt this method if there are a large number of work in progress.

The above three methods are relatively difficult methods, and special tips are given for this. Once again, remind everyone to carefully understand the advantages and disadvantages of each method in order to adopt specific methods suitable for the actual situation of your company in actual work. Students should focus on the application scope of each method and three methods: equivalent production method, fixed cost method and fixed ratio method.

The auxiliary production costs for labor production can be allocated using direct cost method, one-time interactive allocation method, planned cost method, algebraic allocation method, and sequential allocation method. For details, see "Thematic Supporting Section". There are text explanations and video materials there.

Regarding the manufacturing expenses in the department expenses, students should focus on understanding the annual plan allocation rate method. With this method, no matter how much manufacturing costs actually occur in each month, the manufacturing costs in various products are allocated according to the annual planned distribution rate every month, but if there is a large difference between the annual manufacturing costs and the actual number during the year, The planned allocation rate should be adjusted in a timely manner. It should be noted that there will be a balance at the end of the general ledger and detailed ledger for manufacturing costs using this method, and the direction of the balance is not fixed, which may be on the debit side or on the lender side. This balance is the difference between the actual occurrence of manufacturing expenses and the planned allocation for the whole year, and it should generally be included in the product costs in December at the end of the year. If it is a debit balance, it means that the actual amount is greater than the planned allocation, and it should be further allocated. Its accounting entries are as follows:

Borrow: production costs

Loan: manufacturing expenses

Building works

Indirect costs are the costs indirectly used for the project, which are all costs incurred on site and by the enterprise in preparation for construction, organization of construction production, and operation and management. Indirect costs include corporate management fees, financial fees and other expenses.

Related components

Composition of project cost indirect costs

Project cost indirect costs include regulatory fees and business management fees. Among them, the fees include project pollution discharge fees, project quota determination fees, social insurance fees (including endowment insurance premiums, unemployment insurance premiums, and medical insurance premiums), housing provident funds, and accident insurance for hazardous operations; corporate management fees include: salaries of management personnel , Office expenses, travel and transportation expenses, use of fixed assets, use of tools and appliances, labor insurance costs, union funds, employee education costs, property insurance costs, financial costs, taxes and other. The above is the composition of the indirect costs of engineering costs stipulated by the state, and the regulations on indirect costs of engineering in different places in China are slightly different. For example, Jiangsu Province has adjusted the fees in the construction cost regulations. It consists of construction sewage fees, construction safety supervision and management fees, social insurance fees, and housing provident fund.