Repairs and Maintenance costs: With respect to repairs and maintenance costs, it is essential (1) to establish control over the total cost incurred by the repairs and maintenance department and (2) to devise effective means for charging repairs and maintenance costs to departments receiving the service.
As a rule, the work of repair and maintenance crews is supervised by a maintenance superintendent. If possible and practical, all actual repairs and maintenance costs should be charged to a maintenance department so that the total cost is controlled by the maintenance superintendent and kept within a maintenance budget. However, since maintenance is a service function, its costs must be distributed to departments that receive the service.
Maintenance work performed for most departments is generally of a recurring nature, and charges are incurred evenly throughout the year. However, certain types of maintenance work, such as breakdowns and overhauls, occur at irregular intervals and often involve large expenditures. In such cases, companies using departmental budgets may spread the cost of major repairs over the year by making monthly charges to operations based on a predetermined rate.
These rates are commonly derived from previous years’ experience. Monthly provisions are charged to Maintenance Expense and credited to a reserve account. Actual repair costs are charged to the reserve account. In this manner, large repairs and maintenance costs are charged to operations in direct proportion to the operating rate and presumably approximate actual deterioration of the equipment.
Possibly and practically, all actual Repairs and Maintenance costs have to be charged to a maintenance department so that the total cost is controlled by the maintenance supervisor and kept within the maintenance budget. Large repairs and maintenance costs are expended to activities in direct ratio to the operating rate and approximate actual deterioration of the equipment. This may otherwise if recommended by the management.