Factory overhead cost is the production costs that exclude raw material or direct labor costs. If a company has a department other than the production department, then the costs incurred in the supporting department are categorized as factory overhead costs. In general, factory overhead cost occurs due to the cost spent for the use of additional materials, indirect labor costs, production machinery supervision, taxes, insurance, as well as other additional facilities used in the production process.

Before determining the cost budget, you must make the classification first.The  classification allows you to set the budget of factory overhead cost (FOC) easily and in accordance with your business needs.

In general it is divided into 3:

a. Regarding its nature, divided into:

  1. The cost of supporting materials: materials that are not part of the production result or smaller value material than the whole product price
  2. Indirect labor cost: the company labor that wages could not be calculated directly to the product
  3. Maintenance cost: spare parts cost, consumable cost, and service price spent by company for production machine repair, vehicle, and other equipment.

b. Regarding its treatment related to production volume changes, divided into:

  1. Fixed FOC: fixed cost even though production volume changes
  2. Variable FOC: the changing costs is in line with the production volume changes
  3. Semi-variable FOC: changing costs but not comparable to production volume changes

c. Regarding the existing departments within the company, divided into:

  1. Direct departmental factory overhead cost: the department and its benefits only applied to the related department.
  2. Indirect departmental factory overhead cost: the cost benefit applied to more than one departments.

There are some steps taken to calculate the factory overhead cost (FOC) :

  1. Create the budget of factory overhead cost based on the activities volume in the future.
  2. Determine and estimate the assessment of factory overhead cost. The assessment basis is based on the product unit, raw material cost, direct labor cost, direct labor hours, and machine hours.

The factors used as the basis of factory overhead costs consideration are:

  1. The dominant number of FOC in the production department
  2. Notice the dominant nature of FOC and its relation to the assessment base applied
  3. Calculate the FOC