OVERHEAD COST Meaning and
Definition
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Overhead cost, also known as indirect cost or operating expenses, refers to the ongoing expenses incurred by a company or organization that are not directly attributable to the production or delivery of specific goods or services. These costs are necessary for the overall functioning of a business and are typically incurred regardless of the level of production or sales.
Examples of overhead costs can include rent or mortgage payments for office or production space, utilities such as electricity and water, insurance, office supplies, salaries of administrative staff, maintenance and repairs, taxes, and depreciation of assets. These costs are not directly tied to the production process or the creation of a specific product or service, but instead contribute to the overall operations of a company.
Overhead costs are typically accounted for and managed separately from the direct costs of production or service delivery. They are often allocated across different departments or cost centers based on various allocation methods, such as employee headcount, square footage, or revenue generated.
Managing overhead costs effectively is crucial for businesses to maintain profitability and control expenses. By carefully analyzing and monitoring these costs, businesses can identify opportunities for cost reduction, streamline operations, and make informed decisions to improve overall financial performance.
Common Misspellings for OVERHEAD COST
- iverhead cost
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- pverhead cost
- 0verhead cost
- 9verhead cost
- ocerhead cost
- oberhead cost
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- oferhead cost
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- oveehead cost
- ovedhead cost
- ovefhead cost
- ovethead cost
Etymology of OVERHEAD COST
The word "overhead" in the context of business and economics comes from the Middle English term "overhed" or "overhede", which meant "above the head" or "over one's head". This term evolved from the Old English word "uforheafod", which had a similar meaning.
The term "overhead cost" refers to the expenses that a business incurs but cannot be directly attributed to specific goods or services. These costs include expenses such as rent, utilities, salaries, and administrative costs. The word "overhead", in this sense, implies that these costs are incurred above or beyond the direct costs associated with producing goods or services.
The concept of overhead costs has been in use since the 19th century, but it became more prevalent and widely recognized in the early 20th century as businesses started to separate and categorize their various expenses.
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