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Factory Overheads and Indirect Manufacturing Costs

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Question 1Question →

Match each cost item incurred by a manufacturing enterprise to its correct accounting classification in the financial statements.

Click a left item, then click its matching right item

Items

Factory supervisor's salary
Depreciation of factory plant and machinery
Carriage inwards on raw materials
Sales manager's commission

Matches

Show answer & explanation

Answer

Factory supervisor's salary matches Factory Overhead (Indirect Labor Cost); Depreciation of factory plant and machinery matches Factory Overhead (Indirect Expense); Carriage inwards on raw materials matches Prime Cost (Direct Material Cost); Sales manager's commission matches Selling and Distribution Expense.
Factory overheads include all indirect manufacturing expenses incurred in the factory building, such as indirect labor (factory supervisor salary) and indirect factory operational costs (depreciation of factory machinery). Direct costs related to raw material acquisition (carriage inwards) increase prime cost, whereas post-production expenses (sales commission) belong to administrative or selling expenses.

Step-by-Step Solution

1
Identify factory overheads (indirect manufacturing costs)
Factory supervisor's salary is categorized as indirect labor, while depreciation of factory machinery is categorized as an indirect factory expense.
Indirect costs incurred within the production environment that cannot be conveniently assigned to specific units produced constitute factory overheads.
2
Identify prime cost components
Carriage inwards on raw materials is added to the cost of raw materials purchased.
Carriage inwards forms an integral part of the direct material cost required to bring raw materials to their present location and condition.
3
Distinguish manufacturing costs from selling expenses
Sales manager's commission is classified as a selling and distribution expense.
Expenses connected with the sale and distribution of finished goods are charged directly to the Profit and Loss Account rather than the Manufacturing Account.

Key Concept

Classification of manufacturing expenditures into direct costs (prime cost), factory overheads (indirect labor and indirect expenses), and administrative or selling expenses.
Question 2Question →

The following extract was taken from the books of Koko Furniture Manufacturing Enterprise for the year ended 31st December 2025:

ItemAmount (₦)
Factory rent paid180,000
Direct wages paid250,000
Factory supervisor salary paid120,000
Factory power and lighting45,000
Depreciation of factory plant30,000

Additional information:
1. Prepaid factory rent at the end of the year amounted to ₦30,000.
2. Factory supervisor salary accrued at the year end was ₦15,000.

What is the total amount of factory overheads to be charged in the manufacturing account?

Show answer & explanation

Answer: ₦360,000

Answer

₦360,000
The total factory overheads calculation properly includes only indirect manufacturing costs adjusted for accruals and prepayments: adjusted factory rent (₦180,000 paid minus ₦30,000 prepaid = ₦150,000), adjusted factory supervisor salary (₦120,000 paid plus ₦15,000 accrued = ₦135,000), factory power and lighting (₦45,000), and depreciation of factory plant (₦30,000). Direct wages of ₦250,000 are a prime cost element and are correctly excluded. Summing these items yields ₦360,000.

Step-by-Step Solution

1
Identify indirect costs and exclude direct costs
Direct wages of ₦250,000 are excluded because they form part of Prime Cost, not Factory Overheads.
Factory overheads only comprise indirect manufacturing costs.
2
Adjust indirect expenses for prepayments and accruals
Adjusted Factory Rent = ₦180,000 - ₦30,000 (prepayment) = ₦150,000. Adjusted Supervisor Salary = ₦120,000 + ₦15,000 (accrual) = ₦135,000.
Prepaid expenses relate to future periods and must be deducted, while accrued expenses relate to the current period and must be added.
3
Sum all indirect manufacturing costs to find total factory overheads
Total Factory Overheads = ₦150,000 (Rent) + ₦135,000 (Supervisor Salary) + ₦45,000 (Power & Lighting) + ₦30,000 (Depreciation) = ₦360,000.
The manufacturing account aggregates all indirect factory expenses to determine total factory overheads.

Key Concept

Factory Overheads and Indirect Manufacturing Costs
Question 3Question →

Apex Garments Ltd. extracted the following expense records for the financial year ended 31st December 2025:

- Factory rent paid: ₦450,000 (including ₦50,000 prepaid for 2026)
- Indirect factory wages: ₦280,000
- Factory supervisor salary paid: ₦150,000 (with ₦30,000 accrued and unpaid)
- Lubricants for manufacturing machinery: ₦60,000
- Direct factory wages: ₦800,000
- Office administrative rent: ₦120,000

What is the total factory overhead for the year?

Show answer & explanation

Answer: ₦920,000

Answer

₦920,000
Factory overheads encompass all indirect manufacturing expenses incurred inside the factory. Factory rent is adjusted for prepayment (₦450,000 - ₦50,000 = ₦400,000) and supervisor salary is adjusted for accrual (₦150,000 + ₦30,000 = ₦180,000). Adding indirect wages (₦280,000) and lubricants (₦60,000) gives total factory overheads of ₦920,000. Direct wages belong to prime cost, and office administrative rent is an administrative expense.

Step-by-Step Solution

1
Adjust factory rent for prepayment
₦450,000 - ₦50,000 = ₦400,000
Prepaid rent relates to the next period and must be deducted from cash paid.
2
Adjust factory supervisor salary for accrual
₦150,000 + ₦30,000 = ₦180,000
Accrued expenses incurred during the current period must be added to cash paid.
3
Sum all indirect manufacturing expenses (factory overheads)
₦400,000 (Factory Rent) + ₦280,000 (Indirect Wages) + ₦180,000 (Supervisor Salary) + ₦60,000 (Lubricants) = ₦920,000
Factory overheads consist of all indirect costs incurred in the manufacturing area. Direct wages belong to prime cost, and office administrative rent belongs to administrative expenses.

Key Concept

Calculation and adjustment of indirect manufacturing costs and factory overheads
Question 4Question →

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.

Click a left item, then click its matching right item

Items

Lubricating oil and cleaning rags used on factory machines
Salaries of factory storekeepers and gatekeepers
Factory building rent and electricity charges
Annual depreciation charge on manufacturing plant

Matches

Show answer & explanation

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
Question 5Question →

The following financial details were extracted from the books of Babs Flour Mills for the year ended 31st December 2025:

Expense ItemAmount (₦)
Direct raw materials consumed1,500,000
Direct factory wages paid800,000
Indirect factory labor420,000
Factory machinery depreciation250,000
Machine lubricants and factory consumables90,000
Rent and rates paid600,000
Factory insurance paid160,000

Additional information:
1. Rent and rates paid includes ₦100,000 paid in advance for 2026. Rent is apportioned 80% to the factory and 20% to the administrative office.
2. Factory insurance has an outstanding accrued liability of ₦40,000 at the end of the financial year.

What is the total amount of factory overheads to be charged in the Manufacturing Account for the year?

Show answer & explanation

Answer: ₦1,360,000

Answer

The total factory overheads to be charged in the Manufacturing Account is ₦1,360,000.
The correct total of ₦1,360,000 is derived by aggregating all indirect costs attributable to production: Indirect labor (₦420,000), Factory portion of rent after deducting prepayment [80% × (₦600,000 - ₦100,000) = ₦400,000], Factory machinery depreciation (₦250,000), Machine lubricants and consumables (₦90,000), and Factory insurance after adding accruals (₦160,000 + ₦40,000 = ₦200,000). Direct raw materials and direct wages belong to Prime Cost and are excluded.

Step-by-Step Solution

1
Calculate the factory portion of rent and rates after adjusting for prepayments.
Total rent expense for the period = ₦600,000 - ₦100,000 (prepayment) = ₦500,000. Factory share (80%) = 80% × ₦500,000 = ₦400,000.
Prepaid expenses must be deducted to reflect only the current period's cost, and non-factory allocations must be excluded.
2
Calculate the total factory insurance expense including accruals.
Factory insurance for the period = ₦160,000 + ₦40,000 (accrual) = ₦200,000.
Accrued expenses incurred in the period must be added to the cash paid.
3
Identify all indirect manufacturing cost items and sum them up.
Indirect factory labor (₦420,000) + Apportioned factory rent (₦400,000) + Factory machinery depreciation (₦250,000) + Machine lubricants and consumables (₦90,000) + Adjusted factory insurance (₦200,000) = ₦1,360,000.
Factory overheads consist strictly of indirect manufacturing costs, excluding direct costs (raw materials and direct wages).

Key Concept

Factory Overheads and Indirect Manufacturing Costs
Estimated Time:2m 0s
Question 6Question →

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?

Show answer & explanation

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.
Question 7Question →

Zentex Shoe Manufacturing Enterprise extracted the following cost records for the financial year ended 31st December 2025:

- Factory supervisor's salary: ₦180,000
- Depreciation of factory machinery: ₦95,000
- Factory electricity paid: ₦120,000 (including ₦15,000 paid in advance for the next period)
- Indirect factory materials consumed: ₦45,000
- Direct wages paid to assembly workers: ₦300,000

What is the total factory overhead for the year?

Show answer & explanation

Answer: ₦425,000

Answer

The total factory overhead for the year is ₦425,000.
The correct calculation isolates all indirect manufacturing expenses—supervisor salary (₦180,000), machine depreciation (₦95,000), indirect materials (₦45,000), and electricity adjusted for prepayment (₦120,000 - ₦15,000 = ₦105,000)—and sums them to ₦425,000. Direct wages are excluded as they are part of prime cost.

Step-by-Step Solution

1
Calculate the net factory electricity expense for the current financial year by adjusting for prepayment.
₦120,000 - ₦15,000 = ₦105,000
Prepayments represent expenses paid for a future period and must be deducted from cash paid under the accrual concept.
2
Identify all indirect manufacturing expenses (factory overheads) and exclude direct costs.
Factory Supervisor's Salary = ₦180,000; Depreciation of Machinery = ₦95,000; Indirect Materials = ₦45,000; Adjusted Electricity = ₦105,000. (Direct Wages of ₦300,000 excluded).
Factory overheads consist strictly of indirect production expenses. Direct wages belong to prime cost.
3
Sum up all indirect manufacturing costs to determine total factory overheads.
₦180,000 + ₦95,000 + ₦105,000 + ₦45,000 = ₦425,000
Adding all verified indirect costs yields the complete factory overhead figure.

Key Concept

Computation and Accrual Adjustment of Factory Overheads
Estimated Time:1m 30s
Question 8Question →

Danladi Woodworks Enterprise extracted the following financial details from its records for the year ended 31st December 2025:

Cost ItemAmount (₦)Additional Details
Factory supervisor's salary180,000Fully paid
Factory power and fuel95,000Includes ₦15,000 prepaid for the next period
Depreciation of factory machinery65,000Charged for the year
Factory rates and insurance40,000Excludes ₦10,000 accrued and unpaid at year-end
Direct wages to machine operators300,000Paid during the year
Office administrative salaries120,000Paid during the year

What is the total factory overhead cost to be charged to the Manufacturing Account for the year?

Show answer & explanation

Answer: ₦375,000

Answer

The total factory overhead cost to be charged to the Manufacturing Account is ₦375,000.
Factory overheads include all indirect costs relating to manufacturing activities. In this scenario, the supervisor's salary (₦180,000), adjusted power and fuel (₦95,000 less ₦15,000 prepaid = ₦80,000), factory machinery depreciation (₦65,000), and adjusted factory rates and insurance (₦40,000 plus ₦10,000 accrued = ₦50,000) are summed to give ₦375,000. Direct wages belong in prime cost, and office salaries belong in the profit and loss account.

Step-by-Step Solution

1
Identify and adjust factory indirect expenses
Factory power and fuel = ₦95,000 - ₦15,000 (prepaid) = ₦80,000; Factory rates and insurance = ₦40,000 + ₦10,000 (accrued) = ₦50,000.
Prepaid expenses must be deducted from paid amounts, whereas accrued expenses must be added to reflect the actual expense incurred for the accounting period.
2
Filter for factory overhead costs only
Factory supervisor's salary (₦180,000), Adjusted factory power (₦80,000), Depreciation of factory machinery (₦65,000), and Adjusted factory rates (₦50,000).
Direct wages (₦300,000) belong to Prime Cost, and Office administrative salaries (₦120,000) are non-factory operating expenses.
3
Calculate total factory overheads
₦180,000 + ₦80,000 + ₦65,000 + ₦50,000 = ₦375,000.
Summing all adjusted indirect manufacturing expenditures yields the total factory overhead.

Key Concept

Factory overheads consist of all indirect production costs incurred inside the factory, adjusted for accruals and prepayments, excluding direct costs (prime cost) and administrative/selling expenses.
Estimated Time:2m 0s
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