Manufacturing overhead

Definition

Manufacturing overhead includes all indirect costs associated with the production process, such as utilities, maintenance, and factory supplies. It does not include direct materials or direct labor costs.

5 Must Know Facts For Your Next Test

1. Manufacturing overhead is also known as factory overhead or indirect manufacturing costs.
2. It includes expenses like depreciation on equipment, rent for the manufacturing facility, and salaries of maintenance personnel.
3. Accurately allocating manufacturing overhead is crucial for determining the total cost of a product.
4. Manufacturing overhead costs are applied to products based on a predetermined overhead rate.
5. These costs must be considered in both job order costing and process costing systems.

Review Questions

• What types of expenses are included in manufacturing overhead?
• Why is it important to accurately allocate manufacturing overhead?
• How are manufacturing overhead costs typically assigned to products?

Related terms

Direct Materials: Raw materials that can be directly traced to the production of specific goods.

Direct Labor: Wages paid to workers who are directly involved in the production of goods.

Predetermined Overhead Rate: A rate used to allocate manufacturing overhead to individual jobs or products, calculated before the period begins based on estimated costs and activity levels.