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Definition of 'Manufacturing'

overhead Manufacturing overhead is a term used in accounting to describe the costs of running a manufacturing business that are not directly related to the production of a product. These costs can include things like rent, utilities, insurance, and salaries for non-production employees. Manufacturing overhead is often referred to as "overhead" or "indirect costs."

Manufacturing overhead is important to track because it can have a significant impact on the profitability of a manufacturing business. If overhead costs are too high, it can make it difficult for a business to make a profit. On the other hand, if overhead costs are too low, it can mean that the business is not investing enough in its operations.

There are a number of different ways to calculate manufacturing overhead. One common method is to use a predetermined overhead rate. This rate is calculated by dividing the total estimated overhead costs for the year by the total estimated production units for the year. The predetermined overhead rate can then be used to allocate overhead costs to individual products.

Another method of calculating manufacturing overhead is to use actual overhead costs. This method involves tracking all of the actual overhead costs incurred during the year and then allocating those costs to individual products. Actual overhead costs can be more accurate than predetermined overhead rates, but they can also be more time-consuming to calculate.

Regardless of the method used to calculate manufacturing overhead, it is important for businesses to track these costs carefully. By understanding their overhead costs, businesses can make better decisions about how to run their operations and improve their profitability.

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