Indirect Cost Category Contributions: Indirect cost category could also contribute to management’s coordination of activities in a production department. For instance in the 1900’s management worked on perfecting the factory accounting system primarily because of indirect costs. Indirect costs were popularly called the factory burden and this was decreasing the efficiency by imposing financial overheads. Most of the innovations in cost accounting that were useful for coordination of activities and planning are seen to have been created in the context of addressing the indirect cost category. On a similar note it was observed that an organization Metcalfe further used data as can be determined from different units to bring overhead costs or indirect costs under control. They devised a way to calculate the cost factor. This cost factor was determined based on the contribution of each debarment on a whole. Controlling this cost factor based on the making operations efficient in each unit was therefore a goal of different managers. Here again it was the indirect cost category that led to the formulation of the cost factor and the efficient management and coordination of the activities so as to keep the cost factor reduced.
The context of this report is the proposed integration of the Hygiene team to the Food Production Function. The Food production function has a cost structure that involves direct costs and the Hygiene team always treated as a standalone unit has been classified as an indirect cost activity. Now Sarah wants to control these costs and at the same time ensure that the activity is carried on well. The report is prepared for the QMF’s top management team on how to use management accounting to integrate the Hygiene Team into the Production Management function.
Hygiene Team Integration: Hygiene as an activity is being integrated under a function. This would therefore come under the supervision of the head of the Production department. The main reasons behind why Hygiene is brought under production is essential to understand whether the costs be integrated under direct costs too. Hygiene is being reassigned mainly to avert the threat of reputation loss. Secondly the company wants to ensure that its products all pass the test.