indirect cost
In the production department of a manufacturing company, depreciation expense is considered an indirect cost, since it is included in factory overhead and then allocated to the units manufactured during a reporting period. The treatment of depreciation as an indirect cost is the most common treatment within a business.

Is depreciation product or period costs?

As shown in the income statement above, salaries and benefits, rent and overhead, depreciation and amortization, and interest are all period costs that are expensed in the period incurred. On the other hand, costs of goods sold related to product costs are expensed on the income statement when the inventory is sold.

Is depreciation of administrative equipment a product cost?

Depreciation could be an administrative expense, but it can also be a selling expense, and a part of the cost of manufacturer’s products. For example, the depreciation on the building and furnishings of a company’s central administrative staff is considered an administrative expense.

Is factory depreciation an overhead cost?

Examples of costs that are included in the manufacturing overhead category are as follows: Depreciation on equipment used in the production process. Property taxes on the production facility. Rent on the factory building.

Is depreciation on factory building a period cost?

Here are some examples of each type of cost: Depreciation on production equipment is a manufacturing cost, but depreciation on the warehouse in which products are stored after being manufactured is a period cost.

Is depreciation a general and administrative expense?

All executive compensation and benefits are considered an administrative expense. Depending on the asset being depreciated, depreciation expenses may be classified as a general, administrative or selling expense. Organizations may choose to include consulting and legal fees as an administrative expense as well.

Can depreciation be in cost of sales?

Typically, depreciation and amortization are not included in cost of goods sold and are expensed as separate line items on the income statement. However, a portion of depreciation on a production facility might be included in COGS since it’s tied to production—impacting gross profit.

What type of cost is depreciation?

Depreciation is a fixed cost, because it recurs in the same amount per period throughout the useful life of an asset. Depreciation cannot be considered a variable cost, since it does not vary with activity volume.

Where does depreciation on delivery equipment go?

The depreciation on delivery trucks will be reported as an expense on the income statement in the period in which it occurs. It might be reported as part of Selling Expenses or as part of Selling, General and Administrative (SG&A) Expenses.