In this article we will discuss about the meaning and treatment of research cost.

Meaning of Research Cost:

The research expenditure is the cost of searching for new products, new manufacturing process, improvement of existing products, processes or equipment. The development expenditure is the cost of putting research result on commercial basis.

Some of the costs relating to research and development are given below:

(a) Cost of raw materials used in research,


(b) Salaries and wages of R & D staff,

(c) Subscriptions to books and journals,

(d) Subscriptions to research associations,

(e) Cost of tests conducted and trail runs,


(f) Depreciation, insurance, repairs and maintenance of buildings and research equipment, plant etc.,

(g) Patent fees,

(h) Upkeep and maintenance of R & D office, and 

(i) Travelling cost for surveys etc.


The research and development expenditure is a deferred charge which is in the nature of non­recurring expenditure which are expected to be of financial benefit to several accounting periods of indeterminate total length. It is the expenditure incurred for searching a new product or improved product or new methods of production and improved technologies.

The research costs are incurred for carrying basic research or applied research. But the development costs start with decision taken to produce new product or improved product and when the decision is taken to adopt new technologies and new production methods.

The objective in carrying basic research is to improve the existing scientific and/or technical knowledge. But the applied research is carried for a purpose directed towards a specific practical aim or objective.

Treatment of Research Cost:

The treatment of research costs is studied under two heads:


(1) Basic research costs.

(2) Applied research costs.

(a) Basic Research Costs:

These costs relate to all existing products, methods of operation, techniques of production and therefore, the basic research costs should be treated as production overhead for the period during which it has been incurred and has to be absorbed into product costs.


(b) Applied Research Costs:

The applied research costs classified into two for absorption purpose:

(i) If applied research costs relate to improvement of existing products and methods of production, it should be treated as manufacturing overhead for the period and has to be absorbed to the product cost.

(ii) In case, applied research costs are incurred for searching new products or methods of production etc., then such costs are amortised to the product that is newly invented or new method of production adopted. The whole of such expenditure should not be absorbed in the year in such expenditure has been incurred but a part of it should be carried over. The expenditure which, though of revenue nature, is spread over a number of years because its benefit is derived during those years.


When the applied research aimed at improvement of existing product or to invent a new product or development of new technology, and if the research work appears failure in getting the desired results, then such applied research expenditure is charged against profit in the Costing Profit and Loss Account of one or more years depending upon the size of expenditure incurred.