Overhead

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.

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