Production cost (vervaardigingsprijs)
Production cost is the cost price of a self-made asset, with direct costs and permitted allocation of indirect costs.
What does production cost (vervaardigingsprijs) mean?
Production cost is the cost price of a self-made asset, with direct costs and permitted allocation of indirect costs.
The build-up must be reproducible. Not every general administrative or selling expense may be capitalised. For internal development, specific conditions apply as well.
How does it work?
If a company makes an asset itself, there is no purchase invoice and art. 2:388(2) DCC determines the price: the acquisition cost of the raw and auxiliary materials used plus the other costs that can be directly attributed to production, mainly hours of own staff and subcontracted work. On top of that a reasonable share of the indirect costs may, but need not, be included, and the interest on debts over the construction period.
The rule applies to self-constructed fixed assets and to inventories of finished products and work in progress. For fixed assets the entry runs through the profit and loss account: the costs are in wages and materials, and the line capitalised production for own use compensates them (art. 2:377(3) DCC, point (c)).
Example
A machine-building BV builds a welding robot for own use. Material € 18,000, 400 direct hours at € 30 = € 12,000 and a surcharge for production overhead of € 10 per direct hour = € 4,000. Production cost: 18,000 + 12,000 + 4,000 = € 34,000. The interest over four months of construction on the average amount invested, 17,000 × 6% × 4/12 = € 340, may be added; the BV chooses not to. The hours of the salesperson who shows the robot to customers (€ 1,200) do not count. Entry: tangible fixed assets € 34,000 to capitalised production for own use.
In the annual accounts
Asset on the balance sheet and policy in the notes.
Difference from acquisition cost
Acquisition cost applies to what you buy and follows from an invoice plus incidental costs (art. 2:388(1) DCC). Production cost applies to what you make and follows from your own calculation. With a purchase, the supplier’s margin is in the price; with own production you capitalise only costs, no own profit mark-up.
Common mistakes
- Capitalising selling costs
- Including internal hours without registration
What to watch for
- Support the direct hours with a time registration per project.
- Record the surcharge for indirect costs and calculate it on normal capacity, so that idle capacity does not end up on the balance sheet.
- State the composition under the accounting policies (art. 2:384(5) DCC); micro entities do not have that disclosure obligation (art. 2:395a(6) DCC).
Legal basis and sources
art. 2:388 DCC
Frequently asked questions
May you capitalise own hours in software development?
Yes, if the conditions for capitalising development costs are met. The BV then keeps a statutory reserve equal to the capitalised amount (art. 2:365(2) DCC).
Is capitalising interest mandatory?
No. The law says that interest over the production period may be included (art. 2:388(2) DCC). Whoever does so states it in the notes.
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Preparing Dutch annual accounts?
Your first set of annual accounts is free, for every size class. Create an account and prepare the annual accounts of your Dutch company under Title 9 of Book 2 of the Dutch Civil Code.
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