Indirect factory costs definition

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What are 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

There are multiple examples of indirect factory costs, including the following:

  • Factory related costs. This includes the depreciation on factory equipment and the production building, the cost of the utilities incurred by the production operation, and the cost of equipment repairs and maintenance.

  • Compensation. This includes the wages earned by production supervisors, quality assurance personnel, and the materials management staff.

  • Other production costs. This includes the cost of production supplies, as well as any costs incurred for services provided by outside parties.

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Terms Similar to Indirect Factory Costs

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