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June 7, 2006

What is manufacturing overhead and what does it include?

Manufacturing overhead (also known as factory overhead, factory burden, production overhead) involves a company’s factory operations. It includes the costs incurred in the factory other than the costs of direct materials and direct labor. This is the reason that manufacturing overhead is often classified as an indirect product cost.

Generally accepted accounting principles require that cost of direct material cost, direct labor, and manufacturing overhead be considered as the cost of products for valuing inventory and for determining the cost of goods sold. (Expenses that are outside of the factory, such as selling, general and administrative expenses, are not product costs and are not inventoriable. They are reported as expenses on the income statement in the accounting period in which they occur.)

Examples of manufacturing overhead include the depreciation or the rent on the factory building, depreciation on the factory equipment, supervisors in the factory, the factory quality control department, factory maintenance employees, electricity and gas for the factory, indirect factory supplies, etc.

Because manufacturing overhead is an indirect cost, accountants are faced with the task of assigning or allocating overhead costs to each of the units produced. This is a challenging task because there may be no direct relationship. (For example, the property tax on the factory building is based on its assessed value and not on the number of units produced. Yet the property tax must be assigned to the units manufactured.)

Learn more about Manufacturing Overhead.

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Comments

20 Responses to “What is manufacturing overhead and what does it include?”

  1. Jeff on April 12th, 2007 3:02 am

    In an Activity cost pool, whcih of these are used to find moh:
    Labor related
    Machine related
    Quality control

  2. Scott on January 13th, 2008 2:01 pm

    Would Depreciation on the equipment in the fitness room used by factory workers be considered a Period Cost or Product Cost(manufacturing overhead)?

  3. Alex on February 20th, 2008 6:01 pm

    Would sale commission that is paid based on a per unit sold be considered a product cost?

  4. Niztrator on September 29th, 2008 2:55 pm

    Lovely, thanks

  5. Brad on November 25th, 2008 12:58 pm

    I work for a company who produces coutnertops and all the office work relate getting it ready to pass onto the fabricators. Would these costs be considered MOH. For instance the paper work that they hand to the fabricator is used to build thetop. So is that a MOH and in turn the entire office supply?

  6. kat on February 27th, 2009 11:20 pm

    Are selling and administrative expenses part of manufacturing overhead?

  7. Lourdes on March 4th, 2009 5:50 pm

    I need help understanding indirect manufacturing cost?
    Are the following accounts indirect manufacturing cost?
    Property tax on factory
    Material used in production
    production labor
    production supervisor salary
    Insurance on factory building

  8. Jin on March 18th, 2009 2:35 pm

    Are selling and administrative expenses part of manufacturing overhead?

    Definately not

    I need help understanding indirect manufacturing cost?
    Are the following accounts indirect manufacturing cost?

    Property tax on factory yes

    Material used in production depends

    production labor No

    production supervisor salary Yes(Might not, depends, but I count it yes)

    Insurance on factory building yes

  9. charles on April 28th, 2009 9:33 am

    manufacturing overhead is production or overhead cost which include, direct material labour, direct material cost.

  10. Tiara Jackson on April 30th, 2009 1:41 pm

    Are intrest exp apart of manufactory OH

  11. Jen on May 24th, 2009 9:55 pm

    is Insurance on raw material stock a Direct material or indirect material or administrative expenses?

  12. William on May 30th, 2009 7:58 pm

    I need help calculating the manufacturing overhead rate based on labor hours and machine hours?

  13. Tammy on June 10th, 2009 6:02 pm

    I need help calculating direct material budget for raw materials. 64,500 lbs 3 lbs per each unit. What is purchased for 3rd quarter?

  14. Ron on July 17th, 2009 10:11 am

    Insurance on Raw Materials is an indirect product cost in my opinion.

    It should be included as a capatilized cost in manufacturing overhead, and allocated as part of your burden rate.

  15. David on August 26th, 2009 7:38 am

    does property on taxes are involved in the manufacturing overhead summary althogh it is being paid in cash??

  16. Tebeta on August 28th, 2009 6:05 pm

    Is the manufacturing overhead also include the paid in cash

  17. Tebeta on August 28th, 2009 7:03 pm

    does the cash rent payment on the warehoure is part of Manufactoring overhead cost when we accumulate the manufacturing cost???

  18. ACoach on August 29th, 2009 5:32 am

    If the warehouse is used for the manufacturing process it is included in the manufacturing overhead. If the warehouse is used for the selling and distribution functions, then the rent is not part of manufacturing overhead. (It will be included in selling, general and administrative expenses.)

  19. Easy-K on October 7th, 2009 6:40 pm

    Are adminstrative expense part of manufacturing overhead?

  20. Maria on October 31st, 2009 8:38 am

    i wonder that cash budget doesnt not include depreciation but overhead budgeting and selling& administrative expense include depreciation. And in cash budget, we subtract disbursement and disbursement include overhead costs and selling exp.

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