Overhead costs are the expenses associated with running a business that are not directly related to producing a product or service. These costs include rent, utilities, insurance, and other administrative costs.
Overhead costs are the expenses incurred in running a business that are not directly related to the production of goods or services. These costs include rent, utilities, insurance, taxes, and other administrative costs. Overhead costs are also known as indirect costs, operating expenses, or overhead expenses. They are necessary for the day-to-day operations of a business, but they do not directly generate revenue.
Overhead costs are typically divided into two categories: fixed and variable. Fixed overhead costs are those that remain the same regardless of the level of production or sales. Examples of fixed overhead costs include rent, insurance, and taxes. Variable overhead costs, on the other hand, are those that fluctuate with the level of production or sales. Examples of variable overhead costs include utilities, supplies, and labor costs.
Overhead costs are important to consider when calculating the cost of goods sold (COGS). COGS is the total cost of producing a product or service, including the cost of materials, labor, and overhead. By understanding the overhead costs associated with a product or service, businesses can better understand their total cost of production and make more informed decisions about pricing and profitability.
Overall, overhead costs are the expenses incurred in running a business that are not directly related to the production of goods or services. They are necessary for the day-to-day operations of a business, but they do not directly generate revenue. By understanding the overhead costs associated with a product or service, businesses can better understand their total cost of production and make more informed decisions about pricing and profitability.