Manufacturing overhead, which is also referred to as factory overhead, refers to the costs incurred during the manufacturing process other than the costs of direct material and labor. This is the major reasons as to why manufacturing overhead is usually classified as indirect costs. According to the Generally Accepted Accounting Principles (GAAP), the costs of direct material costs, direct labor, and manufacturing overhead should be considered at the costs of a product when determining the costs of goods sold. It is vital to note that expenses that occur outside the factory, for instance, selling and administrative expenses should be considered as product costs. Therefore, they are not inventoriable. Such expenses are simply reported as expenses in the income statement (Bazley, Hancock & Robinson, 2014)..
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