Depreciation of factory equipment is a factory overhead. Factory overheads are indirect costs that are incurred during the production process but cannot be directly traced to a specific product or job. They are costs that are necessary to keep the factory running and producing goods. Depreciation is the systematic reduction in the value of an asset over time due to wear and tear or obsolescence. It is a non-cash expense that reflects the loss of value of the factory equipment and is therefore considered a factory overhead.