Overhead

Overhead refers to the ongoing, indirect costs required to run a business that are not directly tied to producing a product or service. These include rent, utilities, salaries of administrative staff, insurance, and office supplies. Overhead is classified into:

• Fixed Overhead: costs that remain constant regardless of production levels (e.g., rent)

• Variable Overhead: costs that fluctuate with business activity (e.g., utilities)

• Semi-Variable Overhead: a mix of both (e.g., equipment maintenance)

Managing overhead effectively is crucial for maintaining profitability.