Manufacturing overhead includes all costs directly related to the manufacturing process of a company, or factory costs. Some of these costs are major expenditures for a factory while others are everyday costs. Certain employee pay is also included within manufacturing overhead. However, it is important to note that there are costs that exist within manufacturing facilities that are not part of overhead.
Major Manufacturing Overhead Costs
Two of the larger expenditures companies will have under the heading of manufacturing overhead are rent and equipment costs for the factory. The actual rent or depreciation on a dedicated factory building would be considered overhead. If your company has one building that combines your factory and administration offices, then you will determine the percentage of your building that your factory consumes and multiply the total rent or depreciation by this percentage to arrive at the overhead cost. The machinery that your factory uses to produce your goods is also considered manufacturing overhead. If your company owns the machinery, you will calculate the depreciation on the equipment for a given time period. When you rent machinery, the rent payments are overhead.
Miscellaneous Manufacturing Overhead Costs
The cost of materials and supplies purchased to clean, lubricate, sterilize or maintain your factory machinery are part of overhead. The cost of cleaning supplies and equipment purchased to help your janitorial and maintenance staff complete their work within the factory space also falls under the heading of overhead as do the costs associated with producing forms and paperwork that are not directly related to your goods sold.
The salaries or wages paid to your factory's janitorial and maintenance staff are considered part of manufacturing overhead as are the salaries of your factory managers, factory management staff responsible for managing materials and members of your quality control staff. These employees should be dedicated entirely to working the manufacturing side of your business at the factory.
While some salaries and wages are considered part of manufacturing overhead, the costs of direct labor are not. The wages paid to your factory floor workers are not part of overhead. Only the salaries of employees not directly involved in creating the goods are overhead. Forms produced and attached to your goods such as invoices and materials used to package your goods for shipment out of the facility are not part of the manufacturing overhead.