What Does a Debit Balance in Manufacturing Overhead Do?

by Alan Li, studioD

Businesses run their operations to produce revenues with the intent to profit. In the course of running their operations, businesses must incur expenses to both acquire their products intended for sale and then to turn those products to actual revenue. Manufacturing overhead is an expense listed under cost of sales, in this case called cost of goods manufactured. It is something of a catch-all term for the costs needed to run the facilities to manufacture the business’s products intended for sale.

Debit and Credit

Debit and credit refer to the left and right sides of the accounting ledger. Each transaction is recorded on both sides of the ledger, with the sums of each side being equal to the other. Different classes of accounts are recorded on different sides of the ledger to represent their increase and on the opposite side to represent their decrease.

Debit and Credit In Relation to Expenses

Expenses are the sums that businesses spend to run their revenue-producing operations. Expenses being incurred are recorded on the debit side of the ledger, meaning that almost all expenses possess a normal debit balance. Negative expenses, called contra-expenses, are recorded as a credit when they increase.

Cost of Goods Manufactured

Cost of goods manufactured is also called cost of sales. In this case, cost of goods manufactured are the expenses that a business incurs to manufacture the products intended for sale that were sold. Such expenses can include direct labor, raw materials and manufacturing overhead.

Manufacturing Overhead

Manufacturing overhead is one of the most common and prominent expenses listed under cost of manufacturing overhead. It can include expenses such as the cost of utilities for the building in which the manufacturing takes place and the cost of running those processes. Manufacturing overhead is a little bit unusual compared to either direct labor or raw materials in that it tends to be a fixed cost rather than a variable cost that changes with the number of units of product produced.

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