Manufacturing Overhead Formula

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

Manufacturing overhead cost formula =

Indirect Costs + Additional Costs

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–

ExpensesCost
Utilities used for production facilityA$9,000
Repair and maintenance costA$5,000
Indirect labor costA$10,000
Indirect material costA$6,000

Your total manufacturing overhead would be A$30,000.

Inference

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. 

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