Overhead cost refers to the ongoing expenses of operating a business that cannot be conveniently traced to or identified with any particular revenue unit, unlike operating expenses such as direct labor, direct materials, and direct expenses). Overhead costs are necessary to keep a business running, but they do not directly contribute to creating a product or service. Examples of overhead costs include rent, utilities, insurance, office supplies, advertising expenses, accounting fees, and payroll). Overhead costs can be fixed, variable, or a hybrid of both.

Overhead costs are important for budgeting purposes and for determining how much a company must charge for its products or services to make a profit. Overhead costs are typically a general expense, meaning they apply to the companys operations as a whole, and are commonly accumulated as a lump sum, which may then be allocated to a specific project or department based on certain cost drivers.

It is important to monitor overhead costs because they can drain a business unnecessarily when not properly controlled. Overhead costs can significantly affect a companys bottom line, and knowing how to accurately track and manage them can help save a business thousands of dollars every year.