Dictionary / Factory Cost
What does Factory Cost mean in accounting?
Quick definition
GeneralManufacturing cost. This term guides how bookkeepers record, classify, and explain related transactions in routine financial reporting.
Read more below
Examples
Steel, machinist wages, and shop power
You run a hardware shop that machines door latches. In March you finish 60 latches. A steel supplier bills $1,470 of bar stock, shop payroll for the machinists is $1,890, and the power company bills $340 for the mill motors. Factory cost of that run is $3,700: materials, direct labor, and factory overhead. Post those three pieces into inventory or work in process; the March P&L does not yet show $3,700 as cost of sales because the latches are still in the bin.
An ad campaign is not factory cost
You run a bindery that binds hardcover notebooks. On November 12, an advertising agency invoices $760 for ads that promote finished journals, and your office manager codes the bill to Factory overhead because it feels like a product cost. That is selling expense, not factory cost. Factory cost is paper, bindery wages, and loft utilities that go into making the books. Recode that agency to advertising so inventory and cost of sales do not absorb a marketing bill that never touched the bindery.
Why it matters
Factory cost is the manufacturing cost of the goods you make: raw material, direct labor, and factory overhead that went into the units. You will add it up every close if you fabricate, assemble, or pack to stock; a reseller or service shop almost never uses the label. Leave shop costs in operating expenses and inventory sits too low while a heavy-build month looks weaker than it is; call only the overhead slice this term and you have named factory expense, not the full manufacturing cost. Cost of sales is the sold slice, the factor ledger is only the subsidiary that holds these lines, and office rent, ads, or selling wages stay out.
Keep learning
Start with the bookkeeping basics, then compare software when you are ready to pick a tool.
Getting startedBookkeeping basics for small-business ownersWhat bookkeeping is, the records you need, double-entry in plain English, and a monthly rhythm that fits a 1–50 person shop.Updated October 4, 2026
RolesWhat does a bookkeeper do?A bookkeeper records bills, invoices, and bank activity so your books stay current. See the weekly work, the month-end close, and what they do not do.Updated August 18, 2026
Monthly closeMonthly bookkeeping: what to close each monthMonth-end is the job: reconcile banks and cards, age bills and invoices, check payroll, then read the reports. A close checklist for small-business owners.Updated August 18, 2026
Receipt CaptureThe 7 Best Receipt Capture Tools for Small BusinessThe 7 best receipt capture tools for small business, ranked: OCR accuracy, QuickBooks and Xero sync, real pricing, and honest tradeoffs for each pick.Updated August 9, 2026Frequently asked questions
What is Factory Cost in bookkeeping?
Manufacturing cost.
When should I use Factory Cost?
Use Factory Cost when the transaction facts match its definition and you need the ledger and financial statements to reflect the correct account and period.
What is a common mistake with Factory Cost?
Factory Cost is used for factory cost entries, while F.O.B covers a related but distinct bookkeeping purpose. Review both terms before posting unusual transactions. A common mistake is applying it by label only instead of checking the underlying transaction details.