Factory overhead definition. Analyzing the definition of key terms often provides more insight about concepts. Factory overhead can be defined as – Factory activities supporting the production process that are not direct material or direct labor; also called overhead and manufacturing overhead. Manufacturing companies can break out inventory costs into three components of direct material, direct labor and factory overhead. Direct material and direct labor can be tracked to a specific job or process while factory overhead cannot. A company needs to include factory overhead in the cost of inventory and in a job or process factory overhead cannot be allocated directly to a cost or process and is therefore grouped together into an account called factory overhead to be allocated to jobs or process using an estimate.
