What is Total Manufacturing Overhead Costs and How to Calculate it

Total manufacturing overhead cost is the total of all indirect costs in running a factory and production related support such as indirect materials, indirect labor, utilities, depreciation and factory maintenance.

Formula (simple):

Total MOH = Sum of all indirect manufacturing costs. Investopedia

Why direct labor and manufacturing overhead are important.

Manufacturing overhead is the “covered” cost of production that, along with direct materials and direct labor, makes up the total cost of a product. Overhead can impact inventory valuation, COGS, product pricing, gross margin and strategic decisions like make-or-buy or pricing promotions. Taking the time to accurately track and assign overhead keeps managers from under pricing and over-pricing products, and more often than not enables them to spot opportunities to take waste out.

What is included in manufacturing overhead (parts and pieces)

How to Calculate the Cost of Manufacturing Overhead --Manufacturing overhead is a term for indirect, similar factory costs.

Typical categories & samples

Indirect materials: lube, glue, small tools, cleaning supplies. Corporate Finance Institute

Direct labor: workstation operatorsIndirect labor: foremen, maintenance workers, quality control. Corporate Finance Institute

Factory/plant overhead costs: Plants utilitiesDepreciation on production machineFactory rentProperty taxInsuranceMachinery repair and spare parts. Investopedia

Other: production related material, environmental compliance costs and small equipment used throughout jobs.

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Fixed, variable and semi-variable overheads

Fixed overhead (e.g., factory rent, salaried supervisors) doesn’t vary with short-term production volume.

Variable overhead (machine hours related power consumption and consumables) vary with the level of output.

Semi-variable (mixed) costs are composed of a fixed component combined with a variable component proportional to usage (e.g., a service contract having minimum charge plus per-usage fees).

It is important for forecasting, break-even analysis, and cost control to know how each type of cost behaves. That’s because fixed costs spread out over units as volume increases, and per-unit overhead shrinks. Investopedia

Total manufacturing overhead calculation

Step 1 — Collect indirect cost line items from the factory ledger for the relevant period (e.g., monthly, quarterly, annually).

Step 2 — Pool costs in overhead categories (Indirect materials, indirect labor, and factory expenses).

Step 3 — Add up the grouped amounts — and that’s your total MOH for the period.

Worked numeric example (monthly):

• Indirect materials: $2,200
• II The second is for indirect labor (maintenance and supervision) 6,500
• Utilities (factory portion): $1,800
• Depreciation (production equipment): $4,000
• Repairs & maintenance: $1,000

Aggregate MOH = 2,200 + 6,500 + 1,800 +4,000+1,000 = $15,500. Corporate Finance Institute

How to calculate MOH per unit (easy):

If the factory made 5,000 that month:

MOH per unit = Total MOH ÷ Units produced = $15,500 ÷ 5,000 = $3.10 per unit.

How to allocate manufacturing overhead to products

Products need to be allocated overhead so that products carry their fair share of indirect costs.

Common allocation bases

• Direct labor hours or cost
• Machine hours
• Units produced (volume-based)
• Activity-based costing (ABC) — uses multiple drivers and overhead assigned based on activity (more accurate for a wide range of production).

Example — machine hour as a simple overhead rate:

• Budgeted MOH (annual): $186,000
• Predetermined overhead rate: $300 per machine hour (based on expected activity level of 31,000 machine hours)

Overhead rate = Budgeted MOH ÷ Budgeted machine hours = $186,000 ÷ 31,000 = $6.00/machine hour. Investopedia

If Product A was completed in 45 machine hours: Applied MOH to Product A = 45 × $6 = $270.

ABC vs traditional single-rate:

Simple single-rate systems are simpler, but ABC spreads costs more accurately across products when an overhead is caused by multiple activities (such as setups or inspections of special handling). It often uncovers hidden cost drivers and helps inform better pricing and process-improvement judgments. 

Absorption vs Variable vs Standard Costing Techniques

Absorption costing allocates all manufacturing costs (both direct + indirect) to the units of production and is needed for external financial reporting (per GAAP).

With variable costing, fixed manufacturing overhead is considered as a period cost — suitable for internal contribution-margin analysis.

Standard costing establishes standard rates for overhead and computes the difference between actual and standard MOH, which is useful in controlling costs and pinpointing inefficiencies.

Applying management method to reduce the overall manufacturing overhead cost

Operations and managerial interventions leading to a direct decrease of MOH or its effect per unit:

Preventive maintenance and asset health monitoring for preventing emergency repairs and downtime.

Monitoring of energy efficiencies and utilities to reduce variable overheads.

Automation of processing and changes in layout to reduce supervisory attention time for idle rates.

Inventory & spare-parts management to prevent overstock and lessen tied-up money.

Transition to greater visibility in allocation (ABC, etc), so management can focus on high-cost activities.

A computerized maintenance management system is a cost-effective tool in many of these actions – by scheduling preventive maintenance, monitoring repair history and managing the spare-parts inventory, a CMMS lowers unplanned downtime and indirect costs related to maintenance. Industry studies indicate that the implementation of CMMS is often associated with quantifiable maintenance cost reductions and increased productivity.

How Makula CMMS can save on manufacturing overhead

Makula CMMS works to minimize maintenance-caused overheads with its user-friendly preventive scheduling, mobile work orders, spare-parts management and analytics revealing where indirect costs are building up. By turning reactive repairs into planned maintenance and providing operations with point-of-need visibility into assets, Makula drives down emergency repair cost, extends asset life, tracks and manages indirect labor and repair spend—all elements contained within MOH.

How Makula contributes

Decrease the cost of indirect labor and repair: but scheduling maintenance for the right technician based on complete histories.

Reduced utilities/usage based cost: associate maintenance and asset performance data to uncover waste.

Manage spare-part spend: monitor when re-ordering needs to happen to prevent bloated inventory or production-halting stockouts.

ROI delivery vs typical CMMS pricing expectations: The shape and form of CMMS cost distribution ranges dramatically across market models (per-user, per-asset, flat-site tiers). Selecting a solution with the correct pricing model and proven ROI with downtime reduction and parts-savings is essential. Typical ranges for markets are from small-medium per-user or asset costs to enterprise-sized site costs.

Note: I can chicle-in a short comparative pricing table that links Makula’s pricing strategy to typical market frameworks (per-user, per-asset, flat-rate tiers) — for buyers trying to match cost vs ROI.

Tools & templates

Instant Excel overhead calculator: record indirect cost lines, then have the spreadsheet figure MOH total, MOH per unit and overhead rates. (I can give you this file.)

MOH verification checklist: map GL accounts to overhead categories; ensure consistent allocation base; review depreciation and utility splits.

CMMS checklist: required asset attributes, preventive plans, spare-part SKUs and technician skill tags.

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