In business, overhead or overhead expense refers to an ongoing expense of operating a business (also known as Operating Expenses – rent, gas/electricity, wages etc.). The term overhead is usually used to group expenses that are necessary to the continued functioning of the business but cannot be immediately associated with the products/services being offered
(e.g., do not directly generate profits). Closely related accounting concepts are fixed costs versus variable costs and indirect costs versus direct costs.
Overhead expenses are all costs on the income statement except for direct labor, direct materials & direct expenses. Overhead expenses include accounting fees, advertising, depreciation, insurance, interest, legal fees, rent, repairs, supplies, taxes, telephone bills, travel and utilities costs.
Overhead can be classified under four headings:
- Functional classification.
- Classification on the nature of expenditure.
- Element-wise classification.
- Classification on behavior of expenditure.