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Manufacturing costs

Manufacturing costs

The concept of production costs is, in addition to the concept of acquisition costs, a base value for the valuation of assets (HGB), economic goods (tax law) and assets (IFRS), so-called approach according to the principle. The delimitation of the production costs from the acquisition costs is of major importance for the scope and amount of the individual components, so-called approach according to the amount.


H.3 Approach by amount 

To theProduction costs to be capitalized include the direct material costs, the direct production costs and the special direct costs of production as well as the material overheads, the production overheads and the depreciation of the fixed assets, insofar as this is caused by the production.4 

In addition, such expenses are determined as attributable, which vary depending on the product quantity.5 This also includes material and production overheads as well as the depreciation of fixed assets, insofar as this is caused by production.
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“Varying” is not to be understood as if it were exclusively a matter of variable cost components. Rather, based on IFRS accounting, this includes overhead costs that have both fixed and variable components. An orientation to the definition in IAS 2.10 and IAS 2.12 shows the real idea.

With § 255 Abs. 2 S. 3 HGB the merchant is given a right to choose. He can get into the Manufacturing costs such expenses that are incurred regardless of the quantity of the product, take into accountinsofar as these relate to the period of manufacture.

If there are only indirectly attributable costs that are attributable to the period of manufacture, these are to be attributed. The legislator names the costs of general administration as well as reasonable expenses for social facilities of the company, voluntary social benefits and expenses for company pension schemes. In order to be allocated to the production costs, it is always a prerequisite that these stated expenses are attributable to the period of production and are reasonable. The costs that can be allocated according to reasonable business management criteria are reasonable. In determining the appropriateness the regulations of the IFRS should again be a guideline.6 Thus, unusually high costs, non-operating, non-period and extraordinary costs do not fall under the definition of production costs.

Research and sales costs may not be included in the production costs according to Section 255 (2) sentence 4 of the German Commercial Code (HGB).

According to the German Commercial Code (HGB), self-created intangible assets are to be capitalized with the production costs incurred, Section 255 (2a) of the German Commercial Code (HGB).

It must be clarified at what point in time the transition from research to development takes place. Research costs represent expenditure that must not be capitalized. On the other hand, the development costs are to be capitalized. A prohibition on capitalizing research costs is justified by the fact that the property of the research result is fundamentally very uncertain.

Research is the independent and systematic search for new scientific or technical knowledge. This means that there is no direct reference to specific products or production processes. As of the balance sheet date, however, it is questionable whether these can be used in the future. The Research phase ends when designing a design or testing prototypes and models begins. This can be used in practice by a negative demarcation to the phase of development a solution must be developed.

Development is the application of research results or other knowledge for the new development of Goods or processes or the further development of goods or processes by means of significant changes.7The legislator understands the term “good” e.g. materials, products, protected rights or unprotected know-how or services. The legislator understands “process” to mean typical production and manufacturing processes as well as developed systems.

Can the merchant have the property property on the balance sheet date8 If the answer is not in the affirmative, the development costs are not capitalized. Therefore, for the purposes of the audit, sufficient documentation is required that explains the extent to which a future internally generated intangible asset is being produced.

A capitalization does not have to be carried out until a self-created intangible asset of the fixed assets is present. Rather, activation is to be carried out from the point in time at which the research phase has just been exited and development begins.9, 10 Only a businessman can make this forecast for the future. As of the balance sheet date, the businessman must be able to assume with a high degree of probability that an individually usable intangible asset will be created.

If research and development costs cannot be reliably differentiated from one another, all expenses are to be recognized as an expense due to the principle of prudence and therefore not to be capitalized, Section 255 (2a) sentence 4 of the German Commercial Code (HGB).

If self-created intangible assets are shown in the balance sheet, then Profits just poured out if the freely available reserves remaining after the distribution plus a profit carryforward and minus a loss carryforward are at least equal to the total amounts recognized less the deferred tax liabilities formed for this purpose. If deferred tax assets are shown in the balance sheet, this rule is to be applied to the amount by which the deferred tax assets replace the liabilities
exceed deferred taxes.

§ 255 HGB

Direct material costs
Direct production costs
Special direct costs of production
Material overhead
Manufacturing overhead
Development costs, provided that the production of an asset is certain

general administrative costs
Expenses for social benefits
Company pension expenses
Borrowing Interest

Distribution costs
Research costs

According to Section 255, Paragraph 3 of the German Commercial Code, there is an option to include interest on borrowed capital. A prerequisite for this is a factual and temporal reference to the production.


3 See BFH, BStBl II 1984, p. 101 and BStBl II 1988 p. 431
4 If the entrepreneur is entitled to deduct input tax, the deductible input tax is not part of the acquisition or production costs, Section 9b of the Income Tax Act.
5 See government draft for BilMoG, p. 131.
6 According to IAS 2.13, production overheads are allocated on the basis of normal capacity. That is, a production volume that is determined on average over a number of periods or seasons under normal circumstances and taking into account failures due to scheduled maintenance.
7 Based on Section 51 (1) no. 2 letter u double letter bb and cc EStG.
8 An asset must meet the following cumulative characteristics: independent marketability, independent assessability, power of disposal.
9 Cf. IAS 38.65 and IAS 38.71, after a subsequent capitalization of costs that were previously recognized as expenses is excluded.
10 It should be noted that the legislature has anchored an activation option in Section 248 (2) of the German Commercial Code (HGB).

Extract from "Bilanzierung aktuell", publisher: Verlag Dashöfer.


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