What is Overhead Cost?
Overhead cost refers to continuing company costs that are not directly related to the creation of a product or service. It is vital not just for budgeting but also for deciding how much a firm should charge for its products or services in order to earn a profit. Overhead cost is any expenditure required to sustain the business that is not directly tied to a certain product or service. Overhead costs appear on a company’s income statement and have a direct impact on its overall profitability. To calculate net income, the corporation must take into account overhead expenditures.
Key Takeaways
- Overhead Cost refers to the continuing expenditures of running a firm but does not include the direct costs connected with developing a product or service.
- Overhead Cost might be fixed, variable, or a combination of the two.
- There are several types of overhead cost , such as administrative overhead, which comprises expenditures associated with running a firm.
- The income statement discloses overhead charges.
Table of Content
- Types of Overhead Cost
- Examples of Overhead Cost
- Why is Overhead Cost Important?
- How is Overhead Cost Calculated?
- How to Allocate Overhead Costs?
- How to Reduce Overhead Cost?
- Overhead Cost – FAQs