Overhead

Definition: The indirect costs or fixed expenses of operating a business (that is, the costs not directly related to the manufacture of a product or delivery of a service) that range from rent to administrative costs to marketing costs

Overhead refers to all non-labor expenses required to operate your business. These expenses are either fixed or variable:

Fixed expenses. No matter what your sales volume is, fixed costs must be met every month. Fixed expenses include rent or mortgage payments, depreciation on fixed assets (such as cars and office equipment), salaries and associated payroll costs, liability and other insurance, utilities, membership dues and subscriptions (which can sometimes be affected by sales volume), and legal and accounting costs. These expenses don't change, regardless of whether a company's revenue goes up or down.

Variable expenses. Most so-called variable expenses are really semi variable expenses that fluctuate from month to month in relation to sales and other factors, such as promotional efforts, change of season, and variations in the prices of supplies and services. Fitting into this category are expenses for telephone, office supplies (the more business, the greater the use of these items), printing, packaging, mailing, advertising, and promotion. When estimating variable expenses, use an average figure based on an estimate of the yearly total.

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