Description: Overhead costs refer to ongoing expenses that cannot be directly attributed to the creation of a product or service. These costs are essential for the overall functioning of a company but cannot be assigned directly to a specific project. They include expenses such as rent for facilities, utilities, salaries of administrative staff, and other indirect costs. Identifying and managing overhead costs is crucial for financial planning and budgeting, as they affect the profitability and viability of projects. They are often classified into fixed and variable costs, allowing companies to better understand their cost structure and make informed decisions about pricing and production. Proper allocation of these costs is fundamental to cost accounting, as it influences the evaluation of an organization’s financial performance. In summary, while overhead costs cannot be directly traced to a product or service, their impact on a company’s financial health is significant and must be managed carefully.
