Tootekulusid

Tootekulusid, or product costs, is a term used in Estonian accounting to describe the costs incurred to produce or acquire goods that are capitalized as inventory. These costs are recorded on the balance sheet and are expensed as cost of goods sold when the inventory is sold. The concept distinguishes production-related costs from other expenses that are not tied directly to inventory.

Typical components of tootekulusid include direct materials (raw materials consumed in production), direct labor (wages of workers directly involved in manufacturing), and manufacturing overhead (indirect costs such as utilities, depreciation of production facilities, maintenance, and factory overhead). Some frameworks also refer to conversion costs, the sum of direct materials and direct labor, and allocate overhead to inventories based on cost drivers like machine hours or labor hours.

Tootekulusid are distinguished from period costs, which are expensed in the period incurred and include selling, general, and administrative expenses, marketing costs, and distribution costs. This distinction affects gross margin, inventory valuation, and timing of expense recognition in financial statements.

Accounting treatment: under IFRS and many national standards, inventories are valued at the lower of cost and net realizable value. The cost of inventories comprises purchase costs and conversion costs (direct materials, direct labor, and an allocated portion of manufacturing overhead). Costs can be assigned using standard costing, actual costing, or activity-based costing, depending on the entity’s system and requirements.

Relevance: understanding tootekulusid supports pricing decisions, profitability analysis, and supply chain optimization. Accurate allocation of overhead and proper inventory costing inform decisions on pricing, outsourcing, make-or-buy, and product-line performance assessment.