 Hello in this lecture we will define overhead according to fundamental accounting principles while the 22nd edition the definition of overhead is Factory activities supporting the production process that are not direct materials or direct labor also called factory 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 then 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 Notice this definition is defining by excluding or saying what the factory overhead is not meaning Factory overhead in terms of inventory is not going to be the direct materials or the direct labor That means that anything else within a production process of inventory within a manufacturing company Manufacturing in inventory that is not direct materials or direct labor We'll go into overhead and we can think of overhead as that bucket of everything else that we want to apply to the inventory For example if we're making tablets We want everything that's within the cost of that tablet to be included in the tablet The two things that we can apply directly to the tablet will be the materials We know exactly the types of materials in terms of plastic or metal that will be in the tablet And the labor that's worked directly on the tablet now those are going to be separate from the third category We will have of factory overhead Because these two items here we can apply directly to a job or directly to a process Those will be the two types of methods We will use if we're magic manufacturing something Manufacturing inventory Manufacturing something like these tablets these two items we can apply directly to those units those jobs or those processes That's not what we're looking at here because we're looking at the stuff that we cannot apply directly to the inventory units We want them applied to the inventory units in some way, but we don't know exactly how to do that So what we're going to do is we're going to put it into this other bucket of Factory overhead or just overhead and then we will then apply it out at a later time to The individual jobs or processes using some type of estimates We can think about it as overhead in anything where we do the job So if we do that if we making these tablets within a factory then anything related to the factory the depreciation on it the rent on it These are all things that we can't apply directly to this one particular phone or particular job or particular process But we want to some way include that cost in that inventory So we're going to put it into overhead and then apply it out using some kind of estimates things like a supervisor salary That's going to be something that we can't apply directly to one particular phone job or process But it is something that we want to we want to apply in some way the salary to those particular phones And we're going to do that by putting it first in the overhead and then applying it out using some type of estimate glue Similar the glue is going to be directly in the the tablet You might think it would be a direct material and it could be however Because of the cost of the glue, it's probably not worth us tracking it Therefore we're going to put it in the overhead and then just apply it out most likely based on a cost basis analysis Then if there's any maintenance on the on the factory all that upkeep that's where we make the Inventory therefore anything to keep up the factory in order We need to put that cost into the inventory some way We can't put it directly there because this work is being applied to all the inventory So we have to first put it in the overhead then apply it out anything like Utilities or rents or depreciation on the factory depreciation on equipment Those are all things that we want to include in the inventory. We want to divide them out to particular inventory units jobs or processes and Therefore we're gonna have to put it into the overhead first and then apply it out using some type of estimate