Stores Oncost

Stores Oncost Indirect Costs Overheads Accounting Cost Accounting Production Costs Supply Chain Management Financial Management
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

### Which of the following best describes stores oncost? - [ ] Direct costs of materials - [ ] Direct labor costs for production staff - [x] Overhead costs for storage and handling of materials - [ ] Sales and marketing expenses > **Explanation:** Stores oncost refers to overhead costs related to the storage and handling of materials, rather than being directly tied to the production or labor costs. ### What typically falls under stores oncost? - [x] Warehouse rent - [ ] Direct materials - [ ] Manufacturing equipment - [ ] Research and development costs > **Explanation:** Warehouse rent is considered a stores oncost as it represents an overhead cost associated with the storage of materials. ### Which method might accountants use to allocate stores oncost? - [ ] Direct tracing - [x] Predetermined overhead rate - [ ] FIFO (First In, First Out) method - [ ] LIFO (Last In, First Out) method > **Explanation:** Accountants often use a predetermined overhead rate, based on various factors, to allocate stores oncosts. ### Can stores oncost be considered a variable cost? - [x] Yes, it can be - [ ] No, it is always fixed - [ ] Only in specific industries - [ ] It depends on the accounting method > **Explanation:** Stores oncost can be variable as it may fluctuate with changes in the volume of material storage and handling activities. ### How are stores oncost typically calculated? - [ ] By manufacturing units - [ ] By direct labor hours only - [x] By overhead allocation methods - [ ] By sales volume > **Explanation:** Stores oncosts are typically calculated using overhead allocation methods, which apply predetermined rates. ### What is a direct contrast to stores oncost? - [x] Direct costs - [ ] Indirect costs - [ ] Variable costs - [ ] None of the above > **Explanation:** Direct costs are a direct contrast to stores oncost, which are indirect expenses. ### Which of these storage-related expenses is regarded as a part of stores oncost? - [ ] Cost of raw materials - [ ] Cost of packaging materials - [x] Salary of warehouse manager - [ ] Production worker wages > **Explanation:** The salary of a warehouse manager represents an overhead related to storage and is considered stores oncost. ### What does stores oncost help a business understand better? - [ ] Direct material requirements - [ ] Sales trends - [ ] Marketing strategies - [x] Full production costs including overhead > **Explanation:** Stores oncost helps a business to better understand the full production costs, taking into account the necessary overhead. ### Which expense is least likely to be classified under stores oncost? - [ ] Depreciation on storage equipment - [ ] Utilities for the warehouse - [x] Raw material purchases - [ ] Insurance for stored materials > **Explanation:** Raw material purchases are direct costs and are therefore least likely to be classified under stores oncost. ### Who benefits primarily from understanding stores oncost? - [ ] Customers - [x] Financial managers and accountants - [ ] Marketing department - [ ] Front-end sales staff > **Explanation:** Financial managers and accountants benefit the most from understanding stores oncost, as it aids in the accurate allocation of production costs.

Thank you for exploring the concept of stores oncost and tackling these quiz questions. Continue to enrich your financial management skills!

Tuesday, August 6, 2024
Stores Returns Note (SRN)
Stores Issue Note (SIN)
Fixed Cost January 1, 1
Indirect Materials Cost January 1, 1
Job Costing January 1, 1
Oncost January 1, 1
Overhead Absorption January 1, 1
Production Cost Centre January 1, 1
Production Overhead January 1, 1
Variable Costs January 1, 1
Absorption Costing January 1, 1
Actual Cost January 1, 1

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