How to Calculate Factory Overhead

Costs Conclusion Understanding Overhead Costs in Factories Understanding Overhead Costs in Factories illustration of factory overhead costs. source envato Factory overhead costs are costs that cannot be directly linked to the production of a product or service. Overhead costs are a type of expense that occurs in all types of companies. These costs have a very important role in the survival of the business or company. Quoted from Investopedia , Overhead refers to ongoing business expenses that are not directly linked to the creation of a product or service.

This is important for budgeting purposes but also to determine how much a company should charge for its products or services to make a profit. If the company has departments other than production, then the costs incurred in the supporting departments will be grouped into Bulk Lead factory overhead costs or BOP. Generally, BOP arises from costs for indirect labor, use of additional materials, taxes, supervision of production machines, insurance, and also various additional facilities in the production process. Factory overhead costs can also be interpreted as costs in the company's Profit and Loss Statement that are outside the company's production activities. In simple terms, inventory purchases are not included in overhead costs.



Because these costs are directly related to the company's production activities. Also read: Get to know more about overhead costs for businesses Types of Factory Overhead Costs Types of Factory Overhead Costs illustration of factory overhead costs. source envato Before determining the cost budget, you must first carry out a classification. That way, the budget amount will be easier to determine according to the company's needs. Here are the parts of the BOP: . Factory Overhead Costs According to their Nature are divided into three which include.