what are overhead costs

Overhead costs are ongoing expenses of operating a business that cannot be conveniently traced to or identified with any particular revenue unit, unlike operating expenses such as direct labor, direct materials, and direct expenses). Overhead costs are necessary for the operation of a business and include expenses such as rent, utilities, business licenses, accounting fees, advertising expenses, payroll, and more. Overhead costs are typically a general expense that applies to the companys operations as a whole and are often accumulated as a lump sum, which may then be allocated to a specific project or department based on certain cost drivers. Overhead costs are important to monitor because they can drain a business unnecessarily when not properly controlled.