Wednesday 9 January 2019

Factory overhead costs

A Manufacturing Overhead Cost or Factory Overhead costs are all costs incurred during the production process except the cost of raw materials and energy costs direct work. The cost of the shortened with the BOP is use to denote some of the indirect costs associate with the manufacturing of products, namely supporting costs. That occur in the manufacture of the product. These costs will become part of the product and are allocate to the products in various ways. In the concept of accounting, Factory Overhead costs or BOP is often consider as the indirect costs of the factory.

Overhead costs are essentially an expenses or costs that are not easily trace and difficult for certain costs identify by the unit. So it can't be link directly with the products and services produce. The overhead expenses are however very important for production and business operations as it gives important support towards. The production and business operation activities in generating profit for the company. It can be said that without this overhead expenses, production will be very difficult cannot even to do its work.


For example, to produce a product certainly requires building and electricity or other utility. To be able to do the activities of production. The cost of the lease of the building and the electricity is issue for public use the company's operations and not for the orders or only on certain products.

The company must pay overhead costs on an ongoing basis, regardless of whether the company produce a product in large quantities (large volume) or a little (small volume). For example, the company must still pay the rent of the building amounting to $ 50 million even though the number of units produce only 1000 units (small volume) or in bulk as much as 10,000 units (large volume).

Understanding of Factory Overhead costs according to experts

  • The overhead costs are the production costs incur in addition to the company's raw material cost and direct labor cost. Factory overhead costs include the cost of materials or helper, the helper fees depreciation of assets, the cost to rent the building factory, and other overhead costs.

  • The sense of a factory Overhead costs, Factory Overhead costs are all the costs of manufacturing that is not in direct materials and direct labor "

  • The factory Overhead costs are all the costs of production that cannot be classify as a raw material cost direct or direct labor cost.

Types of Factory Overhead costs (BOP)

Factory Overhead costs can be classify into several types of classification i.e. types of BOP related Behavior according to changes in the volume of production and other types of BOP according to the nature or object of its expenditure.

Types of Factory Overhead costs according to their behavior

Based on his behavior related to changes in the volume of production, the BOP can be distinguished into three types namely the variable Overhead costs, Overhead costs are fixed and variable costs of Semi-variable.

Variable Factory Overhead costs

Variable Overhead costs are overhead costs that change in proportion to the change in the volume of production. In other words, the variable Overhead costs will increase along with a rise in production volume. On the contrary, From Overhead costs will decrease when production volume decline. This Variable Factory Overhead costs are indirect Labor, the cost of maintenance and repair of machines and materials cost helper.

Factory Overhead costs are Fixed.

Fixed Overhead costs or Fixed Overhead Cost is a cost overhead unchanged despite necessary changes on the volume of production. In other words, fixed costs per unit will be reduce when the volume of production increases. In contrast, fixed costs per unit will be increase if the production volume decrease. Fixed Factory Overhead costs these Decentralization like factory rent fee or cost depreciation costs of the plant, machinery and equipment work, legal fees and salaries of the Ecosystems company.

Semi-Factory Overhead Costs Variable

Semi-variable Overhead costs overhead costs that change is not proportional to the changes in the volume of production. That is, the cost of semi-private Variable has the characteristics of fix overhead costs or overhead costs or variable can also be said. That the cost of semi-this variable is as fix and partly variable again. Variable Overhead costs can be fix at the level of specific and vary production activities after the production levels. Examples of semi-overhead costs these variables such as the cost of electricity which in certain production volume will remain the same but the cost of electricity will increase in the event of increase production volumes at some level.

Types of Factory Overhead costs according to the nature or object of them spend

By virtue of its nature, the factory Overhead costs can be differentiated into Helper material costs or indirectly (Indirect Materials), indirect Labor (Indirect Labor), indirect costs (Indirect Expenses).

The helper or material costs material costs Indirectly (Indirect Materials)

The helper or material costs material costs Indirectly (Indirect Materials) is the cost of materials use. To complete a product but relatively small in number and difficult to track its whereabouts in the finish product. Indirect materials or materials such as for example the helper cleaning machine use to clean production. The glue use to attach the papers on the production of the book readings or gloves use by workers. To prevent any trace of fingerprints in the production of mobile phones and so on.

Indirect labor costs (Indirect Labor)

Labor costs are the costs incur for the employ workforce that physically does not relate. To the process of making a product or for the purpose of helping the workers produce a product. For example, like Foreman and Manager of production, Staff Administration, Staff Personnel, Accounting Staff and others.

Indirect costs (Indirect Expenses)

 In addition to the cost of materials and labor cost helper indirectly. There are more indirect costs not directly connect with the products or services produce. But without removing the indirect costs, production will not be able to produce the require products. These costs are also basically also did not easy to accurately allocate to units of product produce.

Indirect costs such as the cost of electricity, water charges, cost of insurance. The cost of the rent (buildings, machines, motor vehicles). The cost of depreciation of assets, the cost of maintenance and repair.

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