In this article, we will define and discuss how to calculate manufacturing overhead. Manufacturing overhead is all indirect costs incurred during the production process. These indirect costs include;
- 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 (such as manufacturing forms)
- Utilities for the factory
- Wages of building janitorial staff
These expenses are allocated to products so that they properly reflect the full cost of producing the good.
Formula to Calculate Manufacturing Overhead.
= Depreciation Expenses on Equipment used in Production
(+) Rent of the factory building
(+) Wages / Salaries of manufacturing managers
(+) Wages / Salaries of material managing staff
(+) Property taxes paid for a production unit
(+) Utilities of the factory
Example:
Suppose you have a firm that produces cakes and the following are the costs of the production.
- Rent is $ 10,000
- Salary and wages of all the employees amount to $ 20,000
- Insurance for the whole business costs $ 3,000
- All the taxes amount to $ 5,000
Calculate the manufacturing overhead.
All we need to do is add all the costs.
= 10,000 + 20,000 + 3,000 + 5,000
= 38,000
Therefore, the manufacturing overhead is $ 38,000.
