Are Office Supplies Considered Manufacturing Overhead?

Businesses incur various expenses. Correctly classifying these expenditures is fundamental for accurate financial reporting, tax compliance, and informed decision-making. Proper cost classification enables businesses to understand their profitability, set appropriate pricing for products or services, and manage resources effectively. This understanding of cost behavior ultimately supports sound financial health and strategic planning.

What Manufacturing Overhead Is

Manufacturing overhead (MOH) encompasses all indirect costs associated with the production process that are not direct materials or direct labor. These expenses cannot be directly traced to specific units of product. MOH is sometimes referred to as factory overhead or production overhead.

Examples of manufacturing overhead include the rent for the factory building, utilities consumed by the production facility, and the depreciation of manufacturing equipment. Costs for indirect labor, such as salaries for factory supervisors, maintenance staff, or quality control personnel, also fall under MOH. These costs are essential for manufacturing operations to occur, contributing to the overall cost of producing goods.

Understanding Office Supplies

Office supplies are consumable items used to support administrative, sales, and executive functions within a business. These items facilitate daily operations but do not directly become part of a manufactured product. Examples include pens, paper, printer ink, staples, and notebooks.

These supplies are generally used in non-production environments, such as corporate offices, sales departments, or human resources. Their purpose is to enable clerical tasks, record-keeping, and communication. Office supplies are distinct from raw materials directly incorporated into a product or tools used in the manufacturing process itself.

Distinguishing Product and Period Costs

Product costs are directly associated with the acquisition or production of goods. These costs include direct materials, direct labor, and manufacturing overhead. Product costs are initially treated as inventory, an asset on the balance sheet, and are only expensed as Cost of Goods Sold (COGS) when the related products are sold, aligning with the matching principle.

In contrast, period costs are not directly tied to the production process and are expensed in the accounting period in which they are incurred. These expenses typically include selling, general, and administrative (SG&A) costs. Examples of period costs are sales commissions, advertising expenses, administrative salaries, and office rent outside of a factory setting. This classification impacts a company’s financial statements by affecting both the balance sheet (inventory) and the income statement (expenses).

Classifying Office Supplies

Office supplies are generally not considered manufacturing overhead; instead, they are typically classified as period costs. This classification stems from their primary use in administrative, selling, or general business activities rather than direct involvement in the production of goods. As period costs, their expense is recognized in the income statement during the period they are used, often categorized under “Office Supplies Expense” or “General and Administrative Expenses.”

However, office supplies can be considered manufacturing overhead in rare cases. This occurs if the supplies are used directly and exclusively within the factory for administrative tasks integral to the production process. Examples might include specific forms for production scheduling, quality control checklists, or administrative materials used solely by factory floor supervisors.