Question

Which of the following should NOT be included as part of manufacturing overhead at a company that makes office furniture?

[[selectone]]

a. Idle time for direct labor.

b. Sheet steel in a file cabinet made by the company.

c. Manufacturing equipment depreciation.

d. Taxes on a factory building.

Answer 1

The correct answer is b) Sheet steel in a file cabinet made by the company.

Explanation -
Manufacturing overhead is all indirect costs incurred during the production process. Manufacturing overhead does not include any of the selling or administrative functions of a business. Direct materials and direct labour are usually considered to be the only costs that directly apply to a unit of production, hence, those items also will not form part of manufacturing overhead.

Here, in this question, Sheet steel in a file cabinet made by the company is a direct material which is used for production of office furniture. Since, direct materials is a direct expense, it will not form part of manufacturing overhead.
Idle time means the amount of time the workers remain idle in a normal working day. It is that time for which the employer pays, but from which he obtains no production. Idle time is treated as indirect labor cost and should, therefore, be included in manufacturing overhead cost.
Depreciation of manufacturing equipment, is also an indirect expense forming part of production process. Hence it is also considered as manufacturing overhead.
The property tax on a factory building is also a part of manufacturing overhead. Although the property tax covers an entire year and appears as one large amount on just one tax bill, GAAP requires that a portion of this amount be allocated or assigned to each product manufactured during that year.