Overheads refer to the ongoing expenses of running a business that are not directly related to producing a good or service. These expenses are necessary for the operation of a business and are incurred to support the business while not being directly related to a specific product or service. Overheads are an important cost element along with direct materials and direct labor). Examples of overhead expenses include accounting fees, advertising, insurance, interest, legal fees, labor burden, rent, repairs, supplies, taxes, telephone bills, travel expenditures, and utilities). There are essentially two types of business overheads: administrative overheads and manufacturing overheads). Administrative overheads include items such as utilities, strategic planning, and various supporting functions). Manufacturing overheads include costs such as rent, property taxes, depreciation of assets, and government licenses. Overheads can be fixed, variable, or a hybrid of both. Fixed overheads are costs that remain constant every month and do not change with changes in business activity levels, while variable overheads are expenses that vary with business activity levels.

It is important to monitor overhead costs because they can drain a business unnecessarily when not properly controlled. Overhead costs are typically a general expense, meaning they apply to the companys operations as a whole. To calculate overhead costs, one can add up expenses for a period, such as monthly expenses. Direct costs, such as labor wages or manufacturing materials, are not considered overhead. Understanding overhead costs is important for budgeting purposes and for determining how much a company must charge for its products or services to make a profit.