Definition of Overhead Expense

Overhead expenses are expenses that a company must have to bear on an ongoing basis to stay in the business. Overhead expenses are not directly related to the production of goods or services. These expenses are included in the budgeting to determine the prices of the products or services in order to earn a reasonable profit. Paying overhead expenses are necessary to be covered to stay at the break-even point.


Examples of Overhead Expenses:

  • Rent of a building (fixed expense)
  • Rent of a production plant (direct cost in the production of the goods)
  • Utilities (variable expense)
  • Taxes
  • Insurance
  • Human resource

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