Factory burden is those costs incurred in the production process, other than direct costs. These costs are accumulated into cost pools at the end of each reporting period, and then allocated to units of production. The allocated costs are eventually charged to expense when the associated units of production are sold.
The allocation of factory burden is required when a business is generating financial statements under the accrual basis of accounting. The net effect of allocation is that the recognition of burden costs is deferred, unless all units produced are sold within the same reporting period.
Examples of costs that are considered factory burden are:
- Production supervisor salaries
- Quality assurance salaries
- Materials management salaries
- Factory rent
- Factory utilities
- Factory building insurance
- Fringe benefits
- Equipment setup costs
- Equipment maintenance
- Factory supplies
- Factory small tools charged to expense
- Insurance on production facilities and equipment
- Property taxes on production facilities
Factory burden is also known as factory overhead.