How to record depreciation as part of product cost?

Depreciation of fixed assets directly used in producing your product is part of your product cost as overhead…

Why is it that we can not input that depreciation under non inventory cost in the production order??

Because that would not follow standard accounting practice. If depreciation expenses were assigned to cost of goods sold through production orders, book value of your fixed assets would never be reduced. When the production assets were eventually disposed, your income would be understated because your loss on disposal would be overstated.

its part of cost of goods manufactured and sold…

manager can not allocate the depreciation under operating expenses and direct cost(cost of goods sold manufactured and sold)??

an asset is never considered as a BOM for manufacturing and is not an overhead cost. overheads are the operating expense of a business and not the expense of producing a particular product.
a machinery is an asset whereas the fuel and raw materials used to run the machinery is part of the BOM. the fuel and raw materials are part of your inventory and their purchase cost would reflect as the cost of goods manufactured.

hmm… some gaap consider part of the depreciation expense as product cost…

just asking lubos if we can have the option to allocate them between operating and cost of goods manufactured and sold?

Add a new expense account in the Chart of Accounts called, say, Production Depreciation, and use this in Production orders to allocate depreciation. It will appear as a negative in the expense listing in the P&L and act as a contra to depreciation expense.

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thank you… a very nice work around… thank you

There are three problems with that:

  1. Your asset book values will be wrong.
  2. The posting to Fixed assets - depreciation, and indeed the appearance of that account in the chart of accounts, are automatic. These functions are hard-coded in the program and take their input from the depreciation entry form under the Fixed Assets tab.
  3. Nothing entered this way will be reflected in the Fixed Asset Summary. That report picks up information only from the hard-coded accounts.

@Tut the OP’s original question is about allocation of depreciation in a production order which only affects the P&L and does not change fixed asset book values . Depreciation of fixed assets will be carried out using the usual method.

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True, @AJD, but not correct accounting. Adding depreciation as a non-inventory cost on a production order means you cannot enter it in the ordinary way so it properly reduces book value. You would be entering the same depreciation twice if you did.

If used in the appropriate circumstances there is nothing incorrect about the accounting. e.g. Machinery depreciated based on machine operating hours.

But that is a different argument than recording depreciation twice, which is what @tyfarmaaccounting seems to advocate. And it departs so far from Manager’s design that none of the built-in functions related to fixed assets will work.

But I’m finished with this thread. I’ve made my points several different ways, so I have nothing more to contribute.