Production service department definition
/What is a Production Service Department?
A production service department is a group within a factory that does not directly manufacture goods; instead, it provides services to other parts of the factory. These service-focused groups are essential to the operation of a factory, despite their indirect impact on the production of goods.
Accounting for a Production Service Department
The cost of production service departments is included in factory overhead, which is then charged to the number of units produced within the reporting period. For example, if the cost of a production service department in January is $50,000 and 100,000 units were produced in January, then $0.50 of the cost of the service department will end up being allocated to each unit produced. If these units are sold in January, then the cost of the service department will appear in the income statement within the cost of goods sold section in that month. If the units are not immediately sold, then the cost of the service department will instead be recorded as an inventory asset on the balance sheet, until such time as the units are sold.
Examples of a Production Service Department
Examples of a production service department are the maintenance, janitorial, and quality assurance groups.