what is manufacturing overhead

Manufacturing overhead, also known as factory overhead or work overhead, is the total cost involved in operating all production facilities of a manufacturing business that cannot be traced directly to a product. It is all indirect costs incurred during the production process and is applied to the units produced within a reporting period. Examples of costs that are included in the manufacturing overhead category are depreciation on equipment used in the production process, property taxes on the production facility, rent on the factory building, salaries of maintenance personnel, salaries of manufacturing managers, salaries of the materials management staff, salaries of the quality control staff, supplies not directly associated with products, utilities for the factory, and wages of building janitorial staff. Manufacturing overhead does not include any of the selling or administrative functions. According to GAAP (generally accepted accounting principles), manufacturing overhead should be included in the cost of finished goods in inventory and work in progress inventory on a manufacturer’s balance sheet and in the cost of goods income statement.