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The overhead costs associated with companies

a) Mostly, people want to avoid "overhead" or indirect costs, but as you can see, it is important to have support systems, building and insurance, human resources, etc. Most businesses would prefer to have no overhead, but it is a necessary part of business. After all, you have to have a building to have your factory in, you must have sales people, human resources, etc.

What other parts of the company would be considered "overhead"?

b) Each type of business has its unique types of costs. For example, an accounting firm will have direct costs of their accountants working on a project, but in any other business, accountants are considered "overhead"

What other examples can you give as to different costs that will be different when used in another type of business?

c) When you buy machinery, for example, it is not a "cost" in that period, it is depreciated over time and each month, a certain portion becomes "overhead" or operating cost.

Can you give examples of other things considered as overhead or operating costs?

Solution Preview

a) There are several different areas that incur overhead within a company. Electricity used to run the machines and the company, the supplies used for the office staff and for production areas, the depreciation on the equipment used for manufacturing or anywhere in the company would also be areas of overhead. Other examples of overhead would include advertising, legal services, accounting services, consulting fees, employee auto expenses, and maintenance on the equipment and in the building itself. Overhead expenses are operating expenses (not fixed ...

Solution Summary

This solution thoroughly explains overhead costs associated with companies. I explain which parts of the company are considered overhead, and examples as to different costs when used in another type of business. I also discuss examples of other things considered as overhead or operating costs. All questions presented by the student are thoroughly addressed with examples.

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