For example, the salaries for security guards, janitors, machine repairmen, plant managers, supervisors, and quality inspectors are all indirect labor costs.

Indirect labor is the cost to the company for employees who aren’t directly involved in the production of the product. Overhead absorption rate is the manufacturing overhead costs per unit of the activity (also called as the cost driver) like labor costs, labor hours and machine hours. Here are the types of costs that are included in manufacturing overhead: Manufacturing overhead costs are called indirect costs because it’s hard to trace them to each product. These costs are applied to the final product based on a pre-determined overhead absorption rate. What are the different types of indirect costs related to manufacturing overhead? Usually manufacturing overhead costs include depreciation of equipment, salary and wages paid to factory personnel and electricity used to operate the equipment.Īccording to GAAP (generally accepted accounting principles), manufacturing overhead should be included in the cost of finished goods in inventory and work in progress inventory on a manufacturer’s balance sheet and in the cost of goods income statement.

It is added to the cost of the final product along with the direct material and direct labor costs. Manufacturing overhead (MOH) cost is the sum of all the indirect costs which are incurred while manufacturing a product.

Overhead expenses