Manufacturing overhead includes all costs of manufacturing other than direct materials and direct labor.
Manufacturing overhead is also known as the:
• Indirect manufacturing cost
• Factory overhead
• Factory burden
Manufacturing overhead has both a fixed and a variable component.
Examples of fixed manufacturing overhead are real estate taxes on the factory, insurance for the factory, and depreciation of the factory and manufacturing equipment (unless the units-of-production method is used to calculate depreciation, in which case depreciation would be linked to the level of output and therefore variable).
Examples of variable manufacturing overhead are indirect materials, indirect labor, utilities, and maintenance/repairs for manufacturing equipment.
Manufacturing overhead is not directly traceable to the product, so it needs to be allocated.
Fixed manufacturing overhead and variable manufacturing overhead can be allocated using the same or different cost drivers.
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