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Difficulty: EasyFactory Overheads and Indirect Manufacturing Costs

Bello Textile Mills extracted the following expenditure details from its books for the financial year ended 31st December 2025:

- Factory supervisor's salary: ₦180,000\text{₦}180,000
- Depreciation of factory plant and machinery: ₦75,000\text{₦}75,000
- Direct wages paid to weavers: ₦350,000\text{₦}350,000
- Factory power and fuel: ₦45,000\text{₦}45,000
- Direct raw materials consumed: ₦500,000\text{₦}500,000

What is the total factory overhead cost for Bello Textile Mills for the year?

Answer: 300000 ₦

Answer

The total factory overhead cost for the year is ₦300,000\text{₦}300,000.
The correct answer is ₦300,000\text{₦}300,000. Factory overheads represent indirect manufacturing expenses. Adding the indirect items: Factory supervisor's salary (₦180,000\text{₦}180,000), Depreciation of factory plant and machinery (₦75,000\text{₦}75,000), and Factory power and fuel (₦45,000\text{₦}45,000) yields ₦300,000\text{₦}300,000. Direct materials and direct wages are prime costs and are excluded.

Step-by-Step Solution

1
Classify expenses into direct costs (prime cost) and indirect factory costs (factory overheads).
Factory supervisor's salary (₦180,000\text{₦}180,000), Depreciation of factory machinery (₦75,000\text{₦}75,000), and Factory power and fuel (₦45,000\text{₦}45,000) are indirect costs. Direct wages (₦350,000\text{₦}350,000) and Direct raw materials (₦500,000\text{₦}500,000) are prime cost components.
Factory overheads consist strictly of indirect expenses incurred within the manufacturing factory environment.
2
Calculate the total factory overhead cost.
Total Factory Overheads = ₦180,000+₦75,000+₦45,000=₦300,000\text{₦}180,000 + \text{₦}75,000 + \text{₦}45,000 = \text{₦}300,000.
Adding all indirect production cost items gives the total indirect manufacturing expenditure.

Key Concept

Factory overheads comprise all indirect costs incurred in the production processes, excluding direct materials, direct labor, and direct expenses.
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Factory Overheads and Indirect Manufacturing Costs

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