What exactly is included in overhead costs?

Question

Is depreciation considered an overhead cost?

Answer 1

Overhead costs can be manufacturing overheads and nonmanufacturing overheads and both can include depreciation.

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).

Even though nonmanufacturing overhead costs are not product costs according to GAAP, these expenses (along with product costs and profit) must be covered by the selling prices of a company’s products. In other words, selling prices must be large enough to cover SG&A expenses, interest expense, manufacturing overhead, direct labor, direct materials, and profit.

Some of the costs that would typically be included in nonmanufacturing costs include:
* Salaries and fringe benefits of selling, general and administrative personnel. This would include the company president, vice presidents, managers, and other employees in the nonmanufacturing functions of the company.
* Rent, property taxes, utilities for the space used by the nonmanufacturing functions of the company.
* Insurance for areas outside of the factory.
* Interest on business loans.
* Marketing and advertising.
* Depreciation and maintenance of equipment and buildings OUTSIDE of manufacturing.
* Supplies for the offices.

The chapter available at the link gives a good explanation of this topic.

Answer 2

Manufacturing Overhead Includes

Answer 3

RE:
What exactly is included in overhead costs?
Is depreciation considered an overhead cost?

Answer 4

Yes, Depreciation is an overhead cost. Your 3 inputs to production are Direct materials, Direct Labor, and Overhead (which includes indirect labor and materials).

The easiest example is a piece of machinery. The machine cost $1M, and can produce 10M units. In addition to the cost of the materials and labor that go into the production of those units, you must allocate the cost of the machine into the inventory to get the proper costing.

Answer 5

Overhead is building / space rent , equipment costs , labor , materials , utilities , advertising etc .

Depreciation is a tax write off ( for example you own a taxi service and the vehicles are continuously worth less $$$$ than what you paid for them )

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Answer 6

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Direct costs can be Fixed cost and Variable costs can be indirect costs. However, generally speaking, direct costs tend to be variable and indirect cost tend to be fixed. In the long term, all costs, including the Fixed Cost are Variable. Yes, it is a common mistake to mix up these issues and even some professors and text books bungle up on this matter.