Chapter 4, Problem 1Q

What are factory overhead expenses, and what distinguishes them from other manufacturing costs? What other terms are used to describe factory overhead expenses?

To determine

Explain the meaning of factory overhead expenses, and indicate the way in which it distinguishes from other manufacturing costs. Indicate the other term that is used to describe factory overhead expenses.

Explanation of Solution

Factory Overhead Cost: Factory overhead cost is the cost other than the direct material cost, and the direct labor cost which is not directly involved in the production of converting the raw materials to the finished products. If the direct material cost or direct labor cost does not constitute the major portion of the total cost of the finished product, then it may be classified as the factory overhead cost. For example: Cost of repairing, and maintaining factory equipment.

Explain the meaning of factory overhead expenses, and indicate the way in which it distinguishes from other manufacturing costs. Indicate the other term that is used to describe factory overhead expenses:

The Factory overhead expenses are the expenses that are incurred in the process of production however that cannot be recognized directly with the finished product. Thus, this distinguishes the factory overhead expenses from direct materials and direct labor which apply directly to the product being manufactured.

Factory overhead expenses are also described as indirect factory expense, indirect manufacturing costs, and factory burden. However, in short factory overhead is often referred to merely as “overhead.”