The indirect manufacturing expenses are those that occur during a production process that can not be traced to an object or specific activity as part of their cost.
This is an expense that is not closely related to the cost of a manufacturing process, but is necessary and must be included in the manufacturing process.
While the direct manufacturing expenses in a company could be direct materials and direct labor, the indirect ones would become public services, maintenance of machinery, rent, among others.
Main Indirect Manufacturing Expenses
These types of expenses or costs generally do not cause any type of problem in a company or factory if in the financial reports they represent a minimum amount of the expense.
However, if the opposite is true, they can represent a serious problem in the purchase of materials, manufacturing expenses and other important decisions. Some of the main manufacturing overhead in various types of business could be:
- Indirect materials. For example, cleaning supplies for offices or warehouses for their proper functioning.
- Indirect labor, which is the one in charge of making the correct operation of the company possible. A great example is the salary of a manager, manager, director, or supervisor.
- Factory supplies, those that are consumed daily but not as part of the manufacturing raw material.
- Factory consumption. Among which can be mentioned equipment maintenance, utilities, utilities, leasing, depreciation, and more. It is a rather imprecise and variable type of expense, which can increase or decrease depending on each type of company or sector.
Generally, companies carry out a process or strategy called departmentalization to classify or assign most of these costs for each department.
In this way, they are divided and become very small sums, depending on where they have been carried out.
Planning and calculation of manufacturing overhead
Planning indirect manufacturing costs is a complete task that requires mastery of various factors. To calculate costs, it is necessary to recognize which are the expenses that cannot be attributed in a concrete way to a certain process of the manufacture of a product. For example, the rental of a space to store machinery.
It is also essential to be able to identify fixed and variable manufacturing overhead. The first of them would become like the previous example, while the second could be a productivity bonus in charge of the supervisor.
To achieve this calculation, each department keeps track of the resources used for each item. It is essential to keep an account throughout the process, which adds the costs of each department and within this accumulative identifies what type of expense each is.
References
- Bextok (2017) Indirect manufacturing costs: examples and classification. Recovered from blog.bextok.com
- Qayyum, Abdul (2014) What are indirect manufacturing costs? Recovered from bayt.com/
- Mu Accounting Course. What are Indirect Manufacturing Costs? Recovered from myaccountingcourse.com
- Averkamp, Harold. What are indirect manufacturing costs? Recovered from accountingcoach.com
- Lema, Elizabeth (2008) Indirect manufacturing costs. Recovered from apuntesfacultad.com.