Factory burden definition
/What is Factory Burden?
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.
When to Allocate Factory Burden
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. Otherwise, some portion of the allocated factory burden will remain within the inventory asset at the end of the reporting period.
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Examples of Factory Burden
Examples of costs that are considered factory burden are as follows:
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
Terms Similar to Factory Burden
Factory burden is also known as factory overhead.