Factory Overhead Budget

Factory Overhead Budget

The overhead budget is an operational budget contained in the master budget of a business. Factory overhead is also known as manufacturing overhead. It is the aggregate of indirect expenses of the factory department. It has two sections, one for variable overhead costs and other for fixed overhead costs. This type of budget shows you just how much it costs you to run your manufacturing facility. It doesn’t include your materials cost or the employee costs to make your products; that goes on other budgets. Factory overhead includes both variable and fixed factory overhead and includes the following expenses:

  • Factory rents and rates, lighting and heating
  • Factory power, fuel, and insurance
  • Factory salaries, indirect wages, and pension
  • Factory stationary and printing
  • Canteen, medical, educational and entertainment facilities to the factory workers.
  • Repairs and maintenance of plant and machinery and factory building
  • Depreciation, insurance of the factory building, plant and machinery, tools and equipment.

The factory overhead budget contains all manufacturing costs other than the costs of direct materials and direct labor. It should provide a schedule of all manufacturing costs other than direct materials and direct labor. The use of factory overhead is mandated by accounting standards but does not bring real value to the understanding of overhead costs, so the best practice is to minimize the complexity of the factory overhead allocation methodology. What this budget helps you with is seeing just how much you need to spend per month or per quarter to keep your facility running. A business may prepare to support departmental schedules, in which the factory overhead costs are separated into their fixed and variable cost elements.

Examples of factory overhead costs are:

Production supervisor & Quality assurance salaries, Factory rent & utilities, Depreciation, Equipment setup costs & maintenance costs, Insurance on production facilities and equipment, Property taxes on production facilities etc.

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