In the world of manufacturing—as competition becomes more intense and customers demand more services—it is important that management not only control its overhead but also understand how it is assigned to products and ultimately reported on the company's financial statements. We view overhead as two types of costs and define them as follows: Nội dung chính
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For a further discussion of nonmanufacturing costs, see Nonmanufacturing Overhead Costs. Manufacturing Overhead CostsOn financial statements, each product must include the costs of the following:
According to generally accepted accounting principles (GAAP), manufacturing overhead must be included in the cost of Work in Process Inventory and Finished Goods Inventory on a manufacturer's balance sheet, as well as in the Cost of Goods Sold on its income statement. As their names indicate, direct material and direct labor costs are directly traceable to the products being manufactured. Manufacturing overhead, however, consists of indirect factory-related costs and as such must be divided up and allocated to each unit produced. For example, the property tax on a factory building is part of manufacturing overhead. Although the property tax covers an entire year and appears as one large amount on just one tax bill, GAAP requires that a portion of this amount be allocated or assigned to each product manufactured during that year. Some of the costs that would typically be included in manufacturing overhead include:
Note that all of the items in the list above pertain to the manufacturing function of the business. Since the costs and expenses relating to a company's administrative, selling, and financing functions are not considered to be part of manufacturing overhead, they are not reported as part of the final product cost on financial statements. Rather, nonmanufacturing expenses are reported separately (as SG&A and interest expense) on the income statement during the accounting period in which they are incurred. What is considered manufacturing overhead?Manufacturing overhead is part of a company's manufacturing operations, specifically, the costs incurred outside of those related to the cost of direct materials and labor. This is why manufacturing overhead is also called an indirect cost. What are all manufacturing costs except direct materials and direct labor?The sum of all manufacturing costs except for direct materials and direct labor is called manufacturing overhead. Is manufacturing overhead included in total manufacturing costs?Total manufacturing cost = Direct materials + Direct labour + Manufacturing overhead. What is the sum of cost of direct materials?Direct materials cost is the sum of all direct materials costs incurred during the accounting period. For purposes of inventory calculation, the direct materials account includes the cost of materials used rather than materials purchased. What are all manufacturing costs except direct materials and direct labor?In manufacturing companies, manufacturing overhead includes all manufacturing costs except those accounted for as direct materials and direct labor. Manufacturing overhead costs are manufacturing costs that must be incurred but that cannot or will not be traced directly to specific units produced.
Is factory overhead a direct manufacturing cost?Manufacturing overhead costs are called indirect costs because it's hard to trace them to each product. These costs are applied to the final product based on a pre-determined overhead absorption rate.
Is factory overhead direct labor?Manufacturing overhead refers to all those costs that are NOT part of direct labor or materials. Therefore, manufacturing overhead costs are indirect and include charges such as: Factory rent and utilities.
What does manufacturing overhead not include?Manufacturing overhead does not include any of the selling or administrative functions of a business. Thus, the costs of such items as corporate salaries, audit and legal fees, and bad debts are not included in manufacturing overhead.
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