Indirect factory costs

Indirect factory costs are all costs incurred by a manufacturing operation, not including direct materials and direct labor. These costs are allocated to the units produced within the same period. If the units are not sold, then the allocated costs are included in ending inventory. If the units are sold, then the associated cost allocation is charged to the cost of goods sold. Examples of indirect factory costs are:

  • Depreciation on factory equipment
  • Compensation for production supervisors, quality assurance personnel, and the materials management staff
  • Factory supplies
  • Repairs and maintenance related to factory operations
  • Utilities costs incurred for the factory operation

Indirect factory costs are also called indirect manufacturing costs and factory overhead.