what is overhead cost

Overhead cost refers to the ongoing expenses of operating a business that cannot be conveniently traced to or identified with any particular revenue unit). These expenses are necessary to support the business but are not directly related to creating or producing a product or service. Overhead costs can be fixed, variable, or a hybrid of both. Examples of overhead costs include accounting fees, advertising, insurance, interest, legal fees, labor burden, rent, repairs, supplies, taxes, telephone bills, travel expenditures, and utilities). Overhead expenses are all costs on the income statement except for direct labor, direct materials, and direct expenses). There are essentially two types of business overheads: administrative overheads and manufacturing overheads). Administrative overheads include expenses such as rent, utilities, and office supplies, while manufacturing overheads include expenses such as factory rent, equipment maintenance, and indirect labor costs). Understanding overhead costs is important for budgeting purposes and for determining how much a company must charge for its products or services to make a profit.