 Hello, in this lecture we will define factory overhead. According to fundamental accounting principles Wild 22nd edition, the definition of factory overhead is factory activities supporting the production process that are not direct materials or direct labor also called overhead and manufacturing overhead. Support accounting instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course each course then organized in a logical reasonable fashion making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems PDF files and more like QuickBooks backup files when applicable. So once again click the link below for a free month membership to our website and all the content on it. Note that this definition is saying everything other than direct materials and direct labor are factory overhead. That is one way to think about the factory overhead because it's really going to be that bucket that we're going to put everything into that we cannot categorize as direct materials or direct labor within a manufacturing process. For example if we're making something like a tablet then that tablet will consist of as we produce it direct materials like the plastic and the metal in it we have the labor the people working directly on the tablet that's not what we're looking at here however we're looking at everything else everything else that is part of the inventory that we are creating but which we cannot apply directly to this particular piece of inventory using one of the two processes that will generally be used when manufacturing things which will be the job cost system or the process cost system. So direct materials and direct labor we can apply directly out to the job we can apply it directly out to the process depending on which of those two systems we're using in tracking our inventory as we make it in a manufacturing process everything else will be in overhead and factory overhead is a good way to describe it because we're making obviously the tablets in the factory and that means that everything related to the factory should be part of the tablets we want it to be included in the inventory that we're making. Problem is we don't know which exact piece which tablet which job which process to apply overhead costs to as we do with the direct materials and direct labor direct materials and direct labor we know exactly which job was worked on or which process were worked on in terms of the overhead costs we are not so sure so how are we going to apply them out if we don't know exactly where they should go we're going to put them into overhead and then we're going to use some type of estimate to apply them to the specific job or process so what are overhead costs then anything that says basically factory in the cost if you're looking through a problem you're probably going to be start thinking that that should be in overhead if it's if it's in the factory not applicable directly to the process or cost such as a supervisor salary different than the salary of the workers being direct cost the supervisor salary may be working on multiple different tablets or and and therefore we can't apply the salary directly to any particular job or process therefore it would go into overhead and then we would have to apply it out using some type of estimate something like glue if we're putting glue in the tablets here then we could probably do it we can track it to the tablets directly or the jobs directly but it probably not cost effective to do so glue being fairly low in price therefore it might be better more cost effective for us to just dump it in the overhead and then apply it out at a later time we could have maintenance on the factory that the salary goes to the maintenance that that factory whatever is being done ever the maintaining of the factory itself is there in order to help generate the phones and therefore that should go into overhead and be applied out to the job or process and anything like the utilities the depreciation on the factory the upkeep of the factory and the equipment all those types of things there's supposed to be a light here for a utility in case it's not too clear it's not the best of anyway all of that kind of stuff will be included in the factory overhead applying a factory overhead which will then later be applied directly to a job or process