Analysis Of Overhead Expenses

Overhead expenses are all the costs not directly associated with the manufacturing of a specific product.  Raw material costs and direct labor are two examples which do not fall into the category of overhead expenses.  These costs are incurred by the manufacturer but cannot identified as part of the direct product costs.

One of the goals in manufacturing or any business is to minimize the direct costs of manufacturing some product.  If you are a made to order manufacturer you may find your overhead less then the actual direct manufacturing costs.  The reason is your expenses to carry out the daily activities of the company are low compared to the labor and material costs directly associated to the manufacturing of a product.  In other companies the overhead may be greater then the actual direct manufacturing costs.  For any business the real goal to reach for is lowering your overhead rate while keeping product production at the same level or increased level.

There are three main categories that overhead can be subdivided into.  The three would be Selling and administration, distribution and plant factory overhead costs.  Each of these cost take away from the companies bottom line.

In the next section we will review each of these overhead categories in detail.

Please see MIE Solutions which offers ERP Software and Cost Estimating software for the manufacturing industry.

Author: MIE Solutions

David Ferguson has over 20 years of experience in the manufacturing and fabrication industry. David Ferguson has been to over 100 manufacturing companies helping and guiding them to be more efficient and cost effective. As a child in Junior High School David Ferguson found a passion for the early computer systems, which would drive much of his future work. David Ferguson created and sold his first computer program, Arrow Data Systems, which was an early CAD/CAM system for the Apple 2e Computer. In the late 1980's after seeing his father (a sheet metal manufacturer) come home many nights estimating, David Ferguson saw an opportunity to optimize his effort through computer technology. Shortly thereafter the FabriTRAK Production Control package was developed. The Quote It! estimating package was developed out of the FabriTRAK system to become one of the leading sheet metal estimating packages in the world. David Ferguson has always had a passion for developing software to make the manufacturing process simpler, faster and more efficient. Prior to founding MIE Solutions David Ferguson worked with his father at Alco Sheet Metal, METALSOFT Inc. and was a consultant at Toyota Motors Sales. David Ferguson has his Masters in Computer Science and Mathematics from California State University, Long Beach.

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