Manufacturing Overhead - Overheads, Cost Management Video Lecture | Cost Management - B Com

hello in this lecture we will define
manufacturing overhead according to a
fundamental accounting principles wild
22nd edition the definition of
manufacturing overhead is factory
activities supporting the production
process that are not direct materials or
direct labor also called overhead when
we're thinking about manufacturing
overhead according to this definition we
are defining overhead by saying what it
is not it is not direct materials and it
is not direct labour what it is as our
direct material and direct labor are
components of inventory therefore we're
talking about a production process we
are producing inventory we're tracking
that inventory we generally will track
three things with relation to inventory
for example if we're making tablets here
there's three kind of components to that
end product as we make it through the
production process those components
including direct materials like the
plastic and whatnot that goes in it
direct labour the actual labor that goes
into that component these are not what
we're talking about here we're talking
about everything else everything else
that is part of this indeed inventory
that is part of this tablet that we
cannot apply directly to the tablet as
we can with direct materials and direct
labor will then go into overhead why is
that necessary because we want to have
the cost per tablet in some way and we
can do that by applying these direct
material and direct labor directly to
that particular item that particular
inventory that particular job or process
whatever process we are using in terms
of tracking inventory but the things
that we're gonna put into overhead
there's going to be everything else it's
the bucket
that's everything else that's why the
definition defined it as what it's not
what it's not is not direct materials
not direct labour it's everything else
for example if we have the supervisor
salary supervisor salary cannot be
applied directly to this piece of
inventory here because the supervisor is
working on all the inventories so we
want to apply her wages to the inventory
in particular
but we can't do it directly we got to
put it into this bucket and then apply
it out in some way using some type of
estimate same thing would be the same
for something like glue or small
materials you might be thinking well the
glues directly involved in the
production here of the inventory however
it's pretty small in nature so therefore
it might not be worth us tracking the
cost of each unit of glue that's going
into this particular inventory product
therefore it's probably more
cost-effective for us to just put it in
the overhead and then apply it out using
some type of estimate any maintenance in
in the area to space the warehouse or
whatever the production facility where
we're producing the inventory should
also be included in the cost of the
inventory again we know it's in there as
a whole in inventory but we need to
track it to the particular units or the
jobs or the process can't do that with
just the maintenance on the entire
facility therefore we put it in the
overhead we'll use an estimate to do
that and estimate to do that later then
anything else like that's involved in
the factory including utilities
utilities also is something we want to
apply to the particular inventory but
cannot do so directly therefore put it
in and put it into overhead and then
apply it out anything that says factory
on it basically and as vault is involved
in the inventory but can't be applied
directly then would be included in
overhead things like rent on the factory
depreciation on the factory depreciation
on the equipment are some other examples
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