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.
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 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.
The complexity of budgeting for overheads (i.e. indirect costs) stems from the fact that overhead costs are not connected directly to individual products, orders or services as are direct costs.
The methodology presented in the following summarises solutions which have been developed in several Ukrainian companies faced with problems of indirect cost planning, allocation of indirect cost to the productive activities and product pricing.
