What is Overhead?
Overhead refers to the ongoing business expenses that are not directly tied to the production of goods or services. These costs are essential for running a business and impact pricing, budgeting, and profitability. Overhead helps determine the minimum revenue a company needs to cover costs and break even.
Types of Overheads:
Fixed Overheads: Expenses that remain constant regardless of business activity. Examples include rent, salaries, property taxes, and insurance.
Variable overheads: Costs that fluctuate based on business operations. Examples include utilities, raw material costs, and sales commissions.
Semi-Variable Overheads: A combination of fixed and variable expenses. These costs have a fixed component but may vary depending on usage. Examples include telephone bills, machinery maintenance, and overtime wages.
Understanding overhead expenses helps businesses optimize costs, improve budgeting, and maintain financial stability.