Production indirect costs (Production overheads)

Last updated: 26.03.2016

Although production indirect costs (also known as production overheads) are costs associated with the production they are indirect which means they are NOT directly and clearly identifiable with cost object (usually product or service). Together with non-production overheads they form total indirect costs of the entity.

Production overheads include:

 

ACCOUNTING FOR INDIRECT PRODUCTION COSTS (PRODUCTION OVERHEADS) IN MOST ACCOUNTING SYSTEMS

In most accounting systems are production overheads allocated partly or almost in full to the value of inventory (or possibly any other asset). They thus become part of profit & loss statement at the moment they are sold.

The treatment depends mainly on the accounting system/standard (IFRS, US GAAP, ….).

The treatment under IAS 2 – Inventories is as follows.

 

Because the production differs from industry to industry, or even from business to business it is difficult to prepare a detailed list of indirect production costs (production overheads). There are usually only a several general lists and definitions (see e.g. above) which can help to comprehend their meaning. Therefore, the final detailed classification is usually up to the entity.



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