Written By: Ehsan Jahandarpour

In business, overhead or overhead expense refers to an ongoing expense of operating a business; it is also known as an “operating expense”. Overheads are the expenditure which cannot be conveniently traced to or identified with any particular cost unit . Such expenses are incurred for output generally and not for particular work order e.g., wages paid to watch and ward staff, heating and lighting expenses of factory etc. Overheads are also very important cost element along with direct materials and direct labour. Examples include rent, gas, electricity, and labour burden. The term overhead is usually used when grouping expenses that are necessary to the continued functioning of the business but cannot be immediately associated with the products or services being offered (i.e., do not directly generate profits). Closely related accounting concepts are fixed costs and variable costs as well as indirect costs and direct costs. Overhead expenses are all costs on the income statement except for direct labour, direct materials, and direct expenses. Overhead expenses include accounting fees, advertising, insurance, interest, legal fees, labor burden, rent, repairs, supplies, taxes, telephone bills, travel expenditures, and utilities.Putting Cost Back into Pricing: Calculating Overhead Percentages