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Controller's Guide to Planning and Controlling Operations by Steven M. Bragg

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5

PLANNING AND CONTROL OF MANUFACTURING COSTS: MANUFACTURING EXPENSES

NATURE OF MANUFACTURING EXPENSES

The indirect manufacturing expenses or overhead costs of a manufacturing operation have increased significantly as business has become more complex, and the utilization of more sophisticated machinery and equipment is more prevalent. As the investment in computer-controlled machinery has increased, improving productivity and reducing direct labor hours, the control of depreciation expense, power costs, machinery repairs and maintenance, and similar items has received a greater emphasis by management.

Manufacturing overhead has several distinguishing characteristics as compared with the direct manufacturing costs of material and labor. It includes a wide variety of expenses, such as depreciation, property taxes, insurance, fringe benefit costs, indirect labor, supplies, power and other utilities, clerical costs, maintenance and repairs, and other costs that cannot be directly identified to a product, process, or job. These types of costs behave differently from direct costs, as the volume of production varies. Some will fluctuate proportionately as production increases or decreases, and some will remain constant or fixed and will not be sensitive to the change in the number of units produced. Some costs are semivariable and for a particular volume level are fixed; however, they may vary with volume but less proportionately and probably can be segregated into their fixed and variable ...

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