Overhead

Definition

Overhead refers to business costs that cannot be allocated to any specific project operations. Simply stated, overhead is the cost of doing business on a daily basis.

Purpose

Overhead costs encompass all indirect expenses necessary for running a business, such as rent, utilities, salaries of administrative staff, and office supplies. Understanding and managing overhead is essential for maintaining profitability and financial health.

Examples of Use

• Office Expenses: Rent, utilities, and office supplies for the company headquarters.
• Administrative Salaries: Wages for administrative and support staff not directly involved in project work.
• Insurance: Costs for business insurance, including liability, property, and health insurance for employees.

Related Terms

• Fixed Costs: Overhead costs that remain constant regardless of business activity levels.
• Variable Costs: Costs that vary with the level of business activity, such as materials and labor directly tied to projects.
• Indirect Costs: Expenses not directly attributable to a specific project but necessary for overall business operations.

Notes

• Cost Management: Effective management of overhead is crucial for maintaining competitive pricing and profitability.
• Budgeting: Accurate budgeting requires a clear understanding of overhead to allocate resources effectively.