Manufacturing Overhead Formula Definition
Manufacturing overhead costs are all indirect costs involved in the company’s manufacturing. It is applied to the units produced in a specific reporting period.
Significance of Manufacturing Overhead Formula
Having the results of manufacturing overhead applied formula is essential for developing and creating goods. Some of the major significance of the formula include:
- Manufacturing overhead company’s balance sheet and income statement
- It gives you an idea of the total expenditure cost
- It helps you in judicious spending or budgeting
- Companies can also use it to improve the effectiveness of the company in terms of budget
Applications of Manufacturing Overhead Formula
The manufacturing overhead applied formula helps to determine how efficiently an e-commerce business functions. It also helps businesses to determine the following:
- Calculate indirect labor, indirect utility, physical costs, financial costs, and more
- Compute all the additional costs, such as electricity or gas
Manufacturing Overhead Formula
Understanding With the Help of an Example
Suppose a furniture manufacturing company has produced 8,000 pieces of furniture in a year. So the breakdown of your manufacturing overhead is–
|Utilities used for production facility||A$9,000|
|Repair and maintenance cost||A$5,000|
|Indirect labor cost||A$10,000|
|Indirect material cost||A$6,000|
Your total manufacturing overhead would be A$30,000.
Manufacturing overhead cost helps you with your accounting and prudent budgeting. It also helps you determine the difference between your business’s direct and indirect costs.