When it comes to running a business, understanding overhead costs is crucial for financial management. Overheads are ongoing expenses that a business incurs regardless of its level of production or sales. In this article, we will delve into the definition of overhead costs and clarify the concept by discussing the various types of overheads that businesses commonly encounter.

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Definition of Overheads: Overheads, also known as overhead costs, refer to the ongoing expenses that a business incurs to operate but are not directly tied to the production of goods or services. These costs are essential for the day-to-day running of the business and are incurred even if the business is not actively producing or selling anything. Types of Overheads: 1. Fixed Overheads: Fixed overheads are costs that remain constant regardless of the level of production or sales. These costs do not vary with the volume of output and typically include expenses such as rent, insurance premiums, salaries of permanent staff, and depreciation of fixed assets. 2. Variable Overheads: Variable overheads are costs that fluctuate in direct proportion to the level of production or sales. These costs increase as production levels rise and decrease as production levels fall. Examples of variable overheads include raw materials, utilities, packaging materials, and sales commissions. 3. Semi-Variable Overheads: Semi-variable overheads are costs that have both fixed and variable components. These costs consist of a fixed portion that remains constant and a variable portion that fluctuates based on production levels. Examples of semi-variable overheads include utilities with a fixed monthly charge and a variable charge based on usage. 4. Indirect Overheads: Indirect overheads are costs that cannot be directly attributed to a specific product or service. These costs support the overall operation of the business and are allocated across different departments or products based on a predetermined allocation method. Examples of indirect overheads include administrative expenses, office supplies, and maintenance costs. By understanding the different types of overheads, businesses can effectively manage their expenses and make informed decisions to improve profitability. Proper budgeting and cost control strategies are essential in controlling overhead costs and ensuring the financial health of the business.