Allocating Factory Overhead Into Product Cost Without Counting It Twice

How to put factory overhead - building depreciation, lighting, supervision, general maintenance - into the cost of one unit, and the one place where this money gets counted twice.

Updated September 5, 2026

Building depreciation, lighting, shop air, supervisors and engineers, the stores, general maintenance - real money that attaches to no single machine. This guide shows how it enters the cost of one unit, and the one place where it gets counted twice.

The limit first, because this is the category most often misread: the figure here is a modelled cost, not an accounting close. Accounting allocates by its own standards; this table allocates in order to COMPARE two options. Different purposes, and they do not have to agree to the last unit.

Full cost or direct cost - pick one and say which

Leave this category empty and the result is STILL correct; it just answers a different question. What you have is direct cost, not full cost.

Both are usable. Trouble starts only when two people compare two numbers of different kinds without saying so - then both are right and the discussion goes nowhere.

The rule: the before table and the after table must be the same kind. Declare overhead on the before side and leave it blank on the after side and the difference is not a saving - it is the part you forgot to enter.

Factory overhead (OVERHEAD)

Plant cost not attached to any single machine: building depreciation, lighting, plant compressed air, supervisor and engineering salaries, the store, general maintenance, industrial cleaning.

Total overhead = Sum of allocated amounts per month. Not multiplied by volume: this is already a whole-month figure.

Note the shape: this field takes the amount for the WHOLE MONTH and is not multiplied by volume. That is the only structural difference from the other nine categories, and it is where the typo usually happens.

Worked example: accounting allocates 9,000,000 a month to this part number and the month makes 2,000 pieces -> the system divides it down to 4,500 per unit. You type 9,000,000, not 4,500.

The one place this money gets counted twice

The Machinery category has a field called “shop overhead per machine hour”. That is also overhead - it just uses a different allocation base: MACHINE RUNNING HOURS.

Enter the same money in both places and it counts twice, and no warning catches it: the number still comes out, still looks reasonable, and is simply too high.

Situation	Where it goes
Money that spreads with machine running hours (compressed air, machine maintenance)	The “shop overhead per machine hour” field under Machinery
Money attached to no machine (building depreciation, supervisor wages)	The Factory overhead category
A manual step with no machine running at all	Must be Factory overhead - a per-machine-hour field cannot reach it

The third row is why this category exists: with only a per-machine-hour field, a manual step carries no overhead at all and therefore always looks cheaper than a machined one - while it still occupies floor space, still burns light, and still has a supervisor.

What does not belong here

Selling, marketing and head-office wages - those sit outside the plant and are not part of manufacturing cost.
Depreciation of the machine that actually makes this part - that is Machinery.
Anything already entered in the “shop overhead per machine hour” field - see above.
The whole plant's overhead charged to one part number - enter only the share allocated to this part.

When it is worth filling this in

When you need a number to negotiate a selling price, or to answer “does this part make money”. Direct cost cannot answer that.

When you are only comparing two versions of the same step, you can usually leave it blank on both sides: the shared part is identical before and after, so it cancels itself in the subtraction. Leaving it out then costs you nothing and saves you a trip to accounting.

Try it on your own numbers: open the cost calculator and pick the Factory overhead category.

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The Ten Manufacturing Cost Categories, in Production Order
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