Overhead Costs

What are Overhead Costs?

Overhead Costs refer to the ongoing expenses of operating a business that are not directly attributed to producing a product or service. These costs are essential for the day-to-day running of the business, but do not directly generate income.

Short Description: Expenses that are not directly tied to specific business activities but are necessary for maintaining operations.

• Fixed Overhead: Costs that do not change with the level of production, such as rent and salaries.
• Variable Overhead: Costs that vary with production levels, like utility bills.
• Indirect Overhead: Expenses not directly linked to a single product or activity, such as administrative costs.

Understanding and managing overhead is crucial for a business to ensure profitability. Companies aim to streamline overhead expenses to improve their bottom line while still maintaining effective operations.