Manufacturing overhead (also referred to as factory overhead, factory burden, and manufacturing support costs) refers to indirect
factory-related costs that are incurred when a product is manufactured.
Along with costs such as direct material and direct labor, the cost of
manufacturing overhead must be assigned to each unit produced so that Inventory and Cost of Goods Sold are valued and reported according to generally accepted accounting principles (GAAP).
Manufacturing overhead includes such things as the electricity used to operate the factory equipment, depreciation on the factory equipment and building, factory supplies and factory personnel (other than direct labor). How these costs are assigned to products has an impact on the measurement of an individual product's profitability.
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