What are indirect manufacturing costs?
Indirect manufacturing costs are those that come from activities that are not directly involved in the production or manufacturing chain.
Some important points
- They include expenses such as rent, salaries of non-productive staff, and services.
- They are divided into fixed, variable, and mixed costs.
- Cost accounting helps to manage and optimize costs.
In other words, they are costs that, although they cannot be directly attributed to the final product, are necessary for the correct functioning of the company. However, they are not essential.
Indirect manufacturing costs: A simple explanation
These costs can include factory rent, maintenance staff salaries, and other overhead costs such as electricity and water. They are crucial to keeping operations running, but cannot be directly associated with the production of a specific product.
Understanding and managing these costs is vital to optimizing resources and improving company efficiency. Cost accounting tools help identify and control these expenses.
What are they for?
Identifying and analyzing the costs involved in manufacturing a product is essential to be able to make decisions and define strategies. In this way, if we realize that a cost is high compared to the impact it generates, we can decide whether to make some adjustments or eliminate it.
This subject of analysis and decision-making is studied and brought together by what is known as cost or management accounting . The main mission of both is to find out where each cost of the company originates and where in the production chain its effect could be attributed. In this way, we can better understand the needs of the company and adopt measures to be more efficient in economic terms.
Types of indirect manufacturing costs
Within indirect manufacturing costs there are three types:
- Variables. These are those that fluctuate in value depending on the volume of production, that is, the greater the volume of production, the greater the amount.
- Fixed. Regardless of the production volume, these are costs that will be generated constantly, without the greater or lesser evolution in manufacturing affecting the figure of these costs.
- Mixed. When we encounter costs that cannot be classified as variable because they have a fixed component and vice versa, we can classify them as mixed costs.
If direct manufacturing costs generally consist of labor and direct raw materials used in the production process, we can therefore say that, in general terms, the rest of the costs are indirect.
Examples of indirect manufacturing costs
Some examples of manufacturing overhead costs include:
1. Depreciation, repairs and maintenance, electricity, etc. for production facilities and production equipment
2. Wages, salaries, and fringe benefits of indirect manufacturing personnel, such as production supervisors, material handlers, quality control personnel, and other factory support personnel
3. Factory supplies, manufacturing-related outside services, and other manufacturing-related costs