MEANING OF OVERHEAD

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Overhead includes activities that are not directly related to the products or services that the firm offers, but they support the firm's profit-making activities. For example, paying the rent is not a profit-making activity, but it allows the firm to maintain a building and manufacture its products.

Therefore, the overhead is an important part of business operations, regardless of whether the firm generates a high volume of business or not. Overhead costs can include both fixed and variable costs such as rent, research & development, advertising, office supplies, taxes, interest, depreciation, insurance, and others. It can include pretty much anything that doesn't go directly into production.

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