Examples of manufacturing overhead costs are:

 Rent of the production building

 Property taxes and insurance on manufacturing facilities and
equipment
 Communication systems and computers for a manufacturing facility
 Depreciation on manufacturing equipment
 Salaries of maintenance personnel
 Salaries of factory management team
 Salaries of the material handlers
 Salaries of the quality control staff
 Factory supplies not directly associated with products
 Utilities for factory
 Janitorial staff wages
All the items in the list above are related to the manufacturing function of
the business. These costs exclude variable costs required to manufacture
products, such as direct materials and direct labour.

Examples of Factory Overheads

Examples of items included in factory overhead are as follows:

 Factory expenses like rent, rates, insurance, water, heat, electricity or other
energy costs, etc.
 Factory maintenance like cleaning, servicing, repairs, oiling, greasing, etc.
 Depreciation of factory plant and machinery and buildings.
 Wages and salaries (other than direct labour) of persons engaged in the factory
e.g. foremen. supervisors. maintenance staff, factory administrative or clerical
staff, testers, examiners. etc.
 Consumable stores and all forms of indirect material, i.e. the material that cannot
be traced as part
of the finished product, e.g. oils and greases, small tools, cleaning material, minor
spare parts for
repairs, etc.

Expenses Usually Included In Factory Overheads

(i). Wages of indirect workers such as repair-men, labour used on cleaning shop floor,
men employed on movement of work-in-progress and financial goods all workers or
service department, etc.
(ii). Work Manager and supervisory staff, salaries and allowances.

(iii). Workers welfare and canteen expenses, medical charges, workmen compensation,
etc.

(iv). Contribution to social security schemes, educational schemes, old age pensionary
contribution, etc.

(v). Carriage inwards on purchased materials.

(vi). Indirect materials, materials of small value.

(vii). Buying and store-keeping expenses.

(viii). Normal losses of time and materials.

(ix). Factory rent and rates, property tax, etc.

(x). Power, oil and gas exp.

(xi). Factory lighting.

(xii). Insurance of Factory premises and of plant and machinery, etc.

(xiii). Depreciation.

(xiv). Works stationery, telephone and clerical salaries.

(xv). Repair and maintenance expenses.

(xvi). Time-keeping expenses.

(xvii). Factory transport expenses, crame services.

(xviii). Expenses of service departments such as Boiler House, electric supply, water-
supply, inspection, tool room, etc.

(xix). Other miscellaneous expenses related to production shops not listed above.

Classification of Factory Overheads

Factory overheads may be classified according to the following heads:

1. According to Nature:
(a). Indirect materials
(b). Indirect labour
(c). Indirect expenses.

(2). According to Normality

(a). Normal factory overheads
(b). Abnormal factory overheads
(3). According to Controllability
(a). Controllable
(b). Uncontrollable

(4). According to Variability

(a). Fixed
(b). Variable
(c). Semi-variable

List of Possible Expenditures treated as Factory Overheads

The following expenditures are (in normal circumstances) included in and treated as
factory overheads:

(1). Indirect Materials

 Cost of consumable stores.
 Cost of stationery used in the factory
(2). Indirect Labour
 Salary paid to the Factory Manager.
 Salary paid to other officers of the company who are involved in manufacturing in
some form or the other.
 Proportionate Salary of the Director(s) devoting time for factory problems etc.
 Holiday pay of workers
 Pay paid for sickness to workers.
 Salary to the storekeeper and other staff of the store department.
 Contribution to Provident Fund of the factory workers and other factory
employees.
 Contribution to social welfare activities.
 Expenditure, other than a contribution, on social and other welfare activities.
 Contribution to social security scheme, e.g. premium for group insurance, State
Insurance Corporation etc.
 Overtime Wages
 Wages for normal idle time (if not charged directly).
(3). Indirect Expense
 Rent of factory land and buildings.
 Insurance of factory buildings, plant and machinery, stock of raw materials etc.
 Municipal taxes and rates etc.
 Expenses of Canteen, educational facilities, recreation clubs etc.
 Experimental and research expenditure.
 Design expenditure.
 Power and fuel.
 Stores handling expenditure.
 Lighting and heating charges of the factory.
 Carriage inwards
 Factory telephone expenditures
(4). Other Chargeable Items
 Depreciation on Plant and Machinery.
 Expenses on removal and erection of machinery.
 Provision for obsolescence.
 Cost of defective work.
 Interest on capital.
 Development costs.
 Royalties and patent fees.
 Maintenance and Repairs.
 Annual Bonus.
 Fringe benefits e.g. prizes etc.
 Training Expenses.
 Township Maintenance Costs.

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