Manufacturing Overhead Calculation Examples Help

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Meaning of Manufacturing Overhead

 
Manufacturing a product not only incurs direct material cost, direct labor cost and direct overhead cost but it also incurs certain costs that are indirectly included in the manufacturing of a product. These indirect costs are called manufacturing overhead cost or factory cost or production cost. Manufacturing costs include direct materials, direct labor and manufacturing overhead.
 
All factory expense that is indirect labor or other indirect expense is identified then all indirect costs are added up to find the manufacturing overhead. Some examples of indirect labor are quality control personnel, equipment maintenance and repair workers and factory clerical staff. It even includes cost of depreciation of equipment and rent or depreciation of buildings. Expenses for utilities, general factory supplies and property taxes are also manufacturing overhead costs.
 
Manufacturing Overhead Per Unit = Total Manufacturing Overhead / Total Units Produced
 

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Manufacturing Overhead Calculation Examples Explanation

 
Let’s understand with help of an example
Example: Given is the following information of a manufacturing company
Manufacturing plant rent = $120,000
Utility bills = $23,000
Insurance = $3000
Maintenance = $19,000
Administrative cost = $100000
Total units produced = $100000
Hence,
 
Manufacturing Overhead Per Unit = Total Manufacturing Overhead / Total Units Produced
= 265000/100000 = 2.65 per unit.
 
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