Each company in the course of its activities incurs indirect costs. These include costs, the direct allocation of which to a certain position in the product range is not possible.
Indirect (overhead) costs accompany the main activity of any organization, but are not directly related to it. They are not included in the cost of materials and labor. Indirect costs are associated with the operation and maintenance of fixed assets, organization and management of production, its maintenance, travel expenses, vocational training for employees of the enterprise and non-production losses (from damage to raw materials and supplies, losses from downtime).
Indirect costs include the costs of telephone, Internet, rent for office space. They are complex in nature and are costs that, when calculating the total costs of manufacturing certain products, are conditionally allocated to individual types and units of production. Calculation and distribution of indirect costs is the basis for making certain production decisions, setting product prices, calculating the profitability of all types of products.
Some indirect costs vary, others remain stable for some time, while reducing the volume of certain types of products does not reduce them.
At each enterprise, a procedure for the distribution of this type of expenses is being developed. In order to include direct and indirect costs in the cost of certain types of products , a whole system of relevant standards is being developed. For the distribution of overhead (indirect) costs develop the corresponding estimates, called budgets. They record all the costs associated with the production of various types of marketable products. Such estimates are in the context of economic articles and are tied to various reporting periods.
Indirect costs during the calculation of the total cost of certain types of products are included in it by the proportional conditional distribution of costs on the distribution bases accepted at the enterprise. For them, most often choose the following indicators:
- the basic salary of employees (without surcharges and bonuses);
- normative (estimated) rates of equipment and work;
- man-hours worked;
- released volume of production;
- some direct costs.
The basic principle of choosing the method of distribution of these costs is considered the maximum compliance of the result of their distribution with the actual costs of producing a specific item of the range of products. The vast majority of enterprises take the basic salary of production workers as a base.
According to existing practice and the norms of current legislation, each company distributes its indirect costs primarily in the areas (types) of activity, and in the second - within a certain type of activity or by type of output. Thus, the rational distribution of these costs determines the accuracy of calculating the cost of production for each production line and all types of products.
In management accounting, there is often a confusion of such concepts as indirect and periodic (conditionally constant) costs. These categories of costs must be clearly distinguished from each other. Indirect costs are a variable indicator, since they are always directly related to the volume of output. In other words, the entire production process determines this type of expense. Their accounting is carried out on the collective distribution account 25 “General production costs”. At the end of each month, from this account, the amount of indirect costs are written off to the following:
- count 20 “Main production”;
- count 23 "Auxiliary production".