The indirect cost which a company has to spend to keep it’s operations going are no predetermined fatality and no legacy from the past. The expense of each indirect cost item should be justified through the indirect function it has been spent for.
When using quantities for cost indirect cost planning (i.e. in the example 36,000 machine hours for production activity 1, 90,000 m2 for production activity 2, 180,000 kg for production activity 3, 18,000 operator hours for production activity x., these quantities have to originate from the annual production programme.
Indirect costs, independent from the purpose they serve, are incurred as types of cost such as salaries, salary related contributions, energy, communication, amortization, utilities, purchased services etc.
The direct labour costs, as a principle, are to be developed on the basis of the individual products planned to be produced. They can be developed on the basis of the products planned to be sold if no change of work-in-progress or finished goods inventory is budgeted for the planning period.
The objective of the direct material budget is to determine what direct material costs need to be incurred by the company when realizing the planned production programme.
The example illustrates the price calculation for a mechanical part which is machine worked on the machines of productive activity 1. The cost intensity is measured through machine hours (0.05 h per item).
The indirect costs which a company has to spend to keep its operation going are not a predestined fact and no legacy from the past.
When using quantities for indirect cost planning (i.e. in the example 36,000 machine hours for production activity 1, 9,000 machine hours for production activity 2, 180,000 m for production activity 3, 18,000 operator hours for production activity 4), these quantities have to originate from the annual production programme.
A cost calculation which aims to give management adequate information to act in the market economy (where the precise knowledge of product cost is essential), realizes this allocation by choosing allocation bases which as close as possible reflect the cost intensity of the processes and of the auxiliary services which they require.
Indirect costs, independent from the purpose they serve, are incurred as types of cost i.e. salaries, salary related contributions, energy, communication, amortisation, utilities, purchased services etc. In total, 58 are listed as lines on the.
