Basic query in accounting

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pavankumar (Querist)

08 October 2013
Q1)How to decide whether Depreciation is direct cost or indirect cost?E.g Depreciation is a direct cost for toyota industry
Q2)Whether Depreciation is a direct or indirect cost for Acqusition of fixed asset or self constructed asset?

I will be very much thankful to you.

Arun Biyani

Arun Biyani (Expert)

08 October 2013 Depreciation on plant and machinery are considered direct cost, rest on all the assets it is considered indirect tax..

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Sanket

Sanket (Expert)

08 October 2013 Depreciation can be either a direct cost or an
indirect cost, or it can be both direct and indirect.
Lets illustrate this with the depreciation of a
machine used in Department 23 of a
manufacturer. The depreciation on that machine
is a direct cost for Department 23. It is direct
because it is traceable to Department 23 without
any allocation.
The depreciation of this same machine will be an
indirect cost of the products manufactured with
that machine. It is indirect because the
depreciation is allocated to the products. Perhaps
the machine in Department 23 has depreciation of
$50,000 per year (cost of machine of $500,000
divided by 10 years of useful life). The $50,000 of
annual depreciation is then assigned or allocated
to products based on the number of hours that
products use the machine. For example, if the
manufacture expects 20,000 machine hours of use
in the current year, then it assigns or allocates
$2.50 ($50,000/20,000) per machine hour to each
product using the machine. If Product #189
requires one hour of this machines time, Product
#189 will have $2.50 as part of its indirect costs.
Indirect manufacturing costs are also referred to
as manufacturing overhead, factory overhead, or
burden.

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