Examples of manufacturing overhead costs, include costs of indirect labor, indirect materials, cost of machine repair, depreciation of plant and building, insurance, electricity, factory supplies, factory administrative costs (such as legal compliance costs), and more. The first step in manufacturing overhead calculation is adding up all such budgeted costs for the period under consideration.
Expenses that occur outside the factory, such as marketing and selling costs, and general administrative expenses, are not part of manufacturing overhead costs, and GAAP stipulates the inclusion of such overhead costs appear separately in the income statement, without assigning them to products.
Many managers undertake a straightforward division of such overhead costs, with the total number of units produced in the same period, to determine the material overhead rate per product. This works when the manufacturing confines itself to a single homogenous product, but creates distortion in a multi-product production set up.