What does Manufacturing Overhead include?

Manufacturing overhead encompasses all the indirect costs that are associated with the production of finished goods, excluding direct material and direct labor costs. This includes expenses such as utilities, maintenance, depreciation of equipment, and salaries of employees who are not involved directly in production, such as factory supervisors and quality control staff. These costs are vital to the manufacturing process but are not traceable directly to individual products, hence their classification as overhead.

The understanding of manufacturing overhead is crucial for accurate product costing and financial reporting. It ensures that all costs associated with the production process are considered when calculating the total cost of goods sold. This contributes to better pricing decisions and profitability analysis for businesses.