Overhead Costs

What are the Overhead Costs?

Overhead costs, often related to as overhead or operating expenses, refer to those expenses associated with managing the business that is linking to creating or producing a product or service. They are the expenses the company contracts to stay in business, regardless of its success level.

Overhead costs are all of the expenses on the business’s income report except for those that are directly related to manufacturing or selling a product or providing a service. A potter’s clay and potting wheel are not overhead costs because they are immediately related to the products made. The rent for the facility where the potter creates is an overhead cost because the potter pays rent whether she’s creating products or not.

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Overhead Cost Examples

A company’s OC depend on the character of the business. A retailer’s expenses will be different from a renovation shop or a crafter’s. Typical examples include:

• Office equipment such as computers or telephones
• Office supplies
• Rent
• Utilities
• Insurance
• Salaries that aren’t a job- or product-specific

Types of Overhead Costs

It can be split down into three types:

• Variable
• Semi-variable
• Fixed

Fixed expenses are the same every month – such as rent. Variable costs increase or decrease, depending on how active the business is. This could include wages for specific employees. Semi-variable prices are those that are incurred regardless of the activity level, but which might increase as the business gets diligent. For example, an accountant in the U.S. always use printer toner but might use more of it in the first quarter of the year when making and printing tax information for buyers.