Non-Production Overhead Costs
In every business soap opera, there’s a behind-the-scenes drama called non-production overhead costs. These are the costs that never steal the limelight like direct materials or labor do, but boy do they know how to make their presence felt in your financial statements!
What are Non-Production Overhead Costs?
Non-Production Overhead Costs refer to the indirect expenses that are essential to running a business but do not directly contribute to the manufacturing process. These costs include:
- Administration overheads: The backstage crew of the business world, handling everything from salaries of executive staff to office supplies.
- Selling overhead: This includes costs incurred from marketing, sales personnel wages, and other expenses associated with drumming up business.
- Distribution overhead: The logistical wizards, dealing with costs related to warehousing and transport of goods from point A to B.
- Research and Development Costs: Sometimes included, these are the mad scientists’ expenses involved in innovation and developing new products.
Why Should You Care?
Ignoring non-production overhead can be like ignoring a simmering pot on the stove—it might spill over before you know it! Understanding these costs helps in budgeting accurately, pricing products properly, and can significantly affect profitability.
Related Terms
- Indirect Costs: These are costs that are not directly attributable to the production process and can include both production and non-production overheads.
- Manufacturing Overhead: Includes all the costs associated with the production process except for direct labor and direct materials.
- Cost Accounting: A type of accounting that aims to capture a company’s total cost of production by assessing its variable and fixed costs.
Suggested Reading
To further stew in the financial soup of non-production costs and how to manage them, consider these books:
- “Cost Accounting For Dummies” by Kenneth Boyd – Perfect for breaking down the complexities of cost accounting into digestible bits.
- “The Balanced Scorecard: Translating Strategy into Action” by Robert S. Kaplan and David P. Norton – Provides insights into integrating financial and non-financial management strategies.
Now, as much as non-production overhead costs might sound like they deserve a theme song from a suspense thriller, remember, with great costs come great responsibilities. Keep a watchful eye on them, and they won’t turn into financial monsters lurking in the dark corners of your balance sheets!
