Search 2,000+ accounting terms and topics. Identify which costs in the following list are considered indirect manufacturing costs. This is your direct cost. Under financial reporting, indirect manufacturing costs are aggregated into an overhead cost pool and allocated to the number of units produced in a reporting period; doing so results in some capitalization of these costs into the inventory asset. Copyright © 2020 | All Rights Reserved | Copyright |. Indirect manufacturing costs are production costs that cannot be directly associated with a produced unit. What Does Indirect Manufacturing Costs Mean. Copyright © 2020 AccountingCoach, LLC. They include rental, depreciation depreciation, repairs and maintenance, electricity, etc. Accounting BestsellersAccountants' GuidebookAccounting Controls Guidebook Accounting for Casinos & Gaming Accounting for InventoryAccounting for ManagersAccounting Information Systems Accounting Procedures Guidebook Agricultural Accounting Bookkeeping GuidebookBudgetingCFO GuidebookClosing the Books Construction AccountingCost Accounting FundamentalsCost Accounting TextbookCredit & Collection GuidebookFixed Asset AccountingFraud ExaminationGAAP GuidebookGovernmental Accounting Health Care Accounting Hospitality Accounting IFRS GuidebookLean Accounting Guidebook New Controller GuidebookNonprofit Accounting Oil & Gas Accounting Payables ManagementPayroll ManagementPublic Company Accounting Real Estate Accounting, Finance BestsellersBusiness Ratios GuidebookCorporate Cash ManagementCorporate FinanceCost ManagementEnterprise Risk ManagementFinancial AnalysisInterpretation of FinancialsInvestor Relations GuidebookMBA GuidebookMergers & AcquisitionsTreasurer's Guidebook, Operations BestsellersConstraint ManagementHuman Resources GuidebookInventory Management New Manager Guidebook Project ManagementPurchasing Guidebook. As the quantity increases direct cost increase. Some examples of indirect manufacturing costs include: To learn more, see the Related Topics listed below: Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years. Indirect manufacturing costs are sometimes called manufacturing overhead. 5. Cost groups structure the visible nature and indirect cost apportionment if configured this way. Direct costs of a manufacturing firm are typically direct materials and direct labor. Examples of these costs are supplies, depreciation , utilities, production supervisory wages , and machine maintenance. Definition: Indirect manufacturing costs are expenses incurred in the production process that can’t be traced back to a specific part or cost object. However, the secretary’s salary, rent, and electricity do not increase directly with the cost object and are therefore indirect manufacturing costs. What is the definition of indirect manufacturing costs? Certain labor can also be indirect, like secretaries and maintenance workers. Indirect cost rate calculations rely on what’s known as a cost pool. However, in recent decades the indirect manufacturing costs have increased significantly and are less likely to be caused by the quantity of direct labor or production machine hours. Home » Accounting Dictionary » What are Indirect Manufacturing Costs? US GAAP requires that indirect manufacturing costs be allocated to, assigned to, or absorbed by the manufacturer's output (in addition to the cost of direct materials and direct labor) for its external financial statements. He is the sole author of all the materials on In a manufacturing company, a cost object is anything for which a cost can be allocated. In other words, they are costs that are not directly linked to the cost object in a manufacturing process. Labor costs that make the production of a product or products possible but can't be assigned to one particular product also are classified as indirect costs. Indirect manufacturing costs are sometimes called manufacturing overhead.