Accounting of indirect production costs in management accounting

Here you can enable accounting of indirect production (or general production) costs by expense items. You can set this up after you configured Basic management accounting capabilities.

This setting is required for routing/processing operations and made after you configured:

Indirect costs include costs related to maintaining production processes and allocated to the cost of goods manufactured.

You can register indirect production costs only by expense items (without products). You can keep accounting by expense items only by amounts.

A temporary cost pool of indirect production costs can be an Expense item or a Cost center. Cost centers accumulate, transit, and allocate expenses on various business functions, including production process maintenance. A cost center is a dimension for an expense item. You can use it in the following ways:

As an aggregation node for detailed, itemized expense accounting in source documents and subsequent allocation of an aggregated expense amount.
As an intermediate cost pool to subsequently allocate costs by items according to common principles.
To account for costs in detail by system objects (for example, work centers and teams) and non-system objects that do not have corresponding breakdowns in the structure of itemized expense accounting breakdowns.

At the end of the period, allocate all expenses from temporary cost pools to target cost pools. A target cost pool is a manufactured product lot. You cannot allocate indirect production costs directly to the cost of a manufactured product lot as they are indirectly related to specific manufactured products. In the application, you can use special tools to allocate costs to other temporary cost pools or the production lot cost. If a cost pool is an Expense item, specify cost allocation rules in the item record. If a cost pool is a Cost center, create separate expense items where costs are recorded to cost centers only. In the Cost center catalog record, set up cost allocation rules.

Account for indirect costs to identify:

Economic structure of expense items
Cost pool structure
Method for cost allocation among other cost pools

With simplified methods of indirect cost accounting, costs are accumulated on expense items and allocated to manufactured product lots according to uniform allocation rules. These methods have a significant drawback. They restrict allocation by different statistic databases.

To implement methods including multiple steps for allocating costs from one temporary pool to another, you need to use a complex cost center structure. With this method, you can:

Use flexible allocation rules and apply different statistic databases.
Analyze costs both by cost centers and expense items.

You can also apply hybrid methods. In this case, you will need to create multiple expense items with the same economic substance but different cost accounting settings.