Overhead Costs
Overhead Costs refer to indirect costs incurred by a business during its operations, which cannot be easily traced to specific products or services. These costs are necessary for the operation and maintenance of the business but do not directly contribute to production. Examples include rent, utilities, insurance, salaries of administrative staff, and depreciation of equipment. Overhead costs are typically allocated to products or services based on a predetermined allocation basis, such as direct labor hours, machine hours, or sales volume. In financial accounting, overhead costs are recorded in the general ledger and reported on the income statement as part of operating expenses. Understanding overhead costs is essential for accurate cost analysis, pricing decisions, and profitability assessment in accordance with accounting principles.