Identifying the Influences on the Inclusion of Non-Manufacturing Overhead Costs in Product Costs

This exploratory research study identifies: (1) the extent to which non-manufacturing overhead costs are included in product costs used in decision making, (2) the influences on their inclusion or exclusion and (3) the methods used to include them. This is important because research has examined the influences on the inclusion/exclusion of total overhead costs in costs, but has not identified the specific influences on the inclusion/exclusion of non-manufacturing overheads. The research is conducted by interviewing management accountants in manufacturing industry. Just under half of the operating units include non-manufacturing overhead costs in product costs. The main reasons for including these costs are to recover them, for use in pricing decisions and to calculate the relevant cost for other product-related decisions. Their inclusion to recover overhead costs and for pricing decision are done as a matter of routine. The relevance of the costs in decision making is limited because of the lack of batch-level cost drivers as found in an activity-based costing system. The main reasons for operating units excluding these costs are because of the influence of a parent company, the perceived irrelevance of these costs and the feeling that it is not possible to assign them to product costs.