Overhead expenses are not directly related to creating a product or service. It’s crucial not only for budgeting but also for deciding how much a company should charge for its products or services to earn a profit. In a nutshell, overhead is any cost that is not directly tied to a product or service and is needed to support a business.

What are overhead types?

Fixed overheads

These are the costs that do not vary with changes in business activity levels and are consistent every month. Salaries, rent, property taxes, asset depreciation, and government licensing fees are examples fixed overheads.

Variable overheads

Variable overheads are expenses that change with the degree of business activity, and they might rise or fall with varying levels of activity. Shipping costs, advertising and marketing costs, advisory service charges, and equipment maintenance and repair are all examples of variable overheads.

Semi-variable overheads

Semi-variable overheads have some characteristics of both fixed and variable costs. Sales commissions, vehicle usage, and utility expenditures, such as power and water, are semi-variable overheads.

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