What do overhead costs represent?

Overhead costs represent ongoing business expenses that are not directly attributed to the creation of a product or service. These costs are essential for the operation of a business and include things like rent, utilities, administrative salaries, and office supplies. While they are necessary for maintaining the ongoing functions of the business, they do not tie directly to the production process itself.

Understanding that overhead encompasses recurring expenses rather than one-time expenses helps clarify the importance of budgeting and financial planning within a business context. These costs can often be substantial, impacting overall profitability and pricing strategies, as businesses must find ways to cover overhead while remaining competitive. By recognizing and managing overhead costs effectively, businesses can ensure they remain viable and financially healthy.