Overhead costs, also known as “indirect costs” or “indirect expenses,” are the costs that a company incurs in order to operate its business, but which are not directly related to the production of its goods or services. These costs include expenses such as rent, utilities, insurance, and administrative salaries.
Overhead costs are different from direct costs, which are costs that are directly related to the production of a company’s goods or services, such as the cost of materials or labor. While direct costs are typically included in the calculation of a company’s cost of goods sold, overhead costs are typically considered to be separate from the cost of goods sold and are not included in that calculation.
Overhead costs are an important part of a company’s operating expenses, as they represent the costs associated with running the business. These costs are typically included in a company’s income statement, along with other operating expenses such as the cost of goods sold and selling, general, and administrative expenses.
Managing overhead costs is an important part of running a successful business, as it can help a company to control its expenses and improve its profitability. By carefully controlling and minimizing its overhead costs, a company can increase its gross profit and net income, and improve its overall financial performance.