Factory Overhead

Definition and Explanation

The factory overhead is the total of all costs (other than direct costs) incurred to maintain and run the production facility, or factory. These are also referred to as Production Overheads or Works 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.
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