What is “Overhead Costs” meaning?

Overhead costs include all the non-production expenses that a business incurs to maintain its day-to-day operations. These can include rent, utilities, administrative salaries, and insurance. These costs are essential for running the business but do not directly contribute to the creation of products or services.

Example

“The company reviewed its overhead costs, which included rent, utilities, and office supplies, to identify areas where savings could be made.”

How is “Overhead Costs” used in business?

In business, understanding overhead costs is crucial for pricing products and services, managing profitability, and budgeting effectively. Companies use these costs to calculate their break-even point and ensure that they cover all necessary expenses while still making a profit.

Pro Tip

Regularly review overhead costs to find areas where efficiencies can be gained, such as negotiating lower rent or reducing energy consumption.

Related Terms

Fixed Costs, Variable Costs, Operating Expenses, Break-even Point