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Difficulty: MediumFactory Overheads and Indirect Manufacturing Costs

A manufacturing firm incurs several production-related expenditures during an accounting period. Pair each factory indirect cost listed on the left with its correct sub-classification under factory overheads on the right.

  • Lubricating oil and cleaning rags used on factory machinesIndirect Materials Overhead
  • Salaries of factory storekeepers and gatekeepersIndirect Labour Overhead
  • Factory building rent and electricity chargesFactory Services and Occupancy Overhead
  • Annual depreciation charge on manufacturing plantFixed Asset Depreciation Overhead

Answer

Lubricating oil and cleaning rags match Indirect Materials Overhead; Salaries of factory storekeepers and gatekeepers match Indirect Labour Overhead; Factory building rent and electricity charges match Factory Services and Occupancy Overhead; Annual depreciation charge on manufacturing plant matches Fixed Asset Depreciation Overhead.
Factory overheads encompass all indirect manufacturing costs incurred within the production environment. These are classified into indirect materials (consumable supplies like machine lubricant), indirect labour (salaries of support staff like storekeepers), indirect factory expenses (occupancy costs like rent and power), and indirect asset costs (depreciation of production machinery).

Step-by-Step Solution

1
Classify consumable workshop supplies
Lubricating oil and cleaning rags represent Indirect Materials Overhead.
Indirect materials are consumable items that support the operation of production equipment without physically forming part of the finished goods.
2
Classify support personnel compensation
Salaries for storekeepers and gatekeepers represent Indirect Labour Overhead.
These workers facilitate factory operations but do not physically transform raw materials into finished units.
3
Classify factory facility running costs
Factory building rent and electricity represent Factory Services and Occupancy Overhead.
These expenses maintain the physical factory building and provide essential utilities for manufacturing.
4
Classify manufacturing asset wear and tear
Depreciation on manufacturing plant represents Fixed Asset Depreciation Overhead.
Depreciation of equipment used in production is an indirect manufacturing cost added to factory overheads.

Key Concept

Sub-classification of Factory Overheads
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Topics

Factory Overheads and Indirect Manufacturing Costs

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