Stores Oncost

In accounting, stores oncost refers to the indirect costs or overheads associated with handling and storing materials used in production. These costs are not directly attributed to the cost of the raw materials themselves but are necessary for the overall production process.
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Definition

Stores oncost, often simply referred to as oncost, encompasses the overhead or indirect costs tied to the storage and handling of materials. These costs might include expenses such as warehouse rent, utilities, salaries of warehouse staff, insurance, and depreciation of storage equipment. These are necessary for keeping the production process efficient and uninterrupted but are not directly traceable to the materials.

Examples

  1. Warehouse Rent: An annual rent of $50,000 for a facility where raw materials and components are stored.

  2. Salaries and Wages: Cost of salaries for warehouse staff who manage inventory, usually amounting to $120,000 per year.

  3. Utilities: Monthly expenses for electricity, heating, and water within the storage facilities could add up to approximately $24,000 annually.

  4. Insurance: Premiums paid for insuring the stored materials against theft, fire, and other risks, costing $5,000 annually.

Frequently Asked Questions

Q1: How is stores oncost different from direct costs?

Stores oncost refers to indirect costs that cannot be directly attributed to a single unit of product. Direct costs, on the other hand, are directly traceable to the production of a product (e.g., raw materials or direct labor).

Q2: Can stores oncost be variable?

Yes, stores oncost can be variable. Although many oncosts are fixed, some costs like utilities or overtime for warehouse staff can vary depending on the volume of materials stored and handled.

Q3: How do accountants allocate stores oncost?

Accountants typically allocate stores oncost by applying a predetermined overhead rate based on factors such as labor hours, machine hours, or direct material costs.

  1. Overhead: General term for all indirect costs associated with running a business.

  2. Cost Allocation: The process of assigning indirect costs to different cost objects, like products or departments.

  3. Variable Costs: Expenses that change in proportion to the level of activity or volume of production.

  4. Fixed Costs: Expenses that remain constant regardless of the level of production or sales.

Online References

  1. Investopedia - Overhead
  2. AccountingTools - Cost Allocation
  3. The Balance - Fixed and Variable Costs

Suggested Books for Further Studies

  1. Cost Accounting: A Managerial Emphasis by Charles T. Horngren, Srikant M. Datar, and Madhav V. Rajan.

  2. Managerial Accounting by Ray H. Garrison, Eric Noreen, and Peter C. Brewer.

  3. Fundamentals of Cost Accounting by William N. Lanen, Shannon W. Anderson, and Michael W. Maher.

Accounting Basics: “Stores Oncost” Fundamentals Quiz

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