What are overheads?
Overheads are expenses that are not directly related to making a product or providing a service.
Having an awareness of possible overheads allows for effective pricing ensuring a profit is made.
Overheads might include, but are not limited to the following examples:
- Administrative costs
- Financial costs
- Rent & utilities
An overhead must be paid for, regardless of whether many sales have been made or none.
Overhead costs are usually fixed meaning they do not change throughout the year.
Being fixed allows overhead expenses to be easily predicted.
Cashflow forecasts help to show overheads that are due over a given period.
Direct costs are costs that directly contribute toward the production of goods or services.
Whereas, overheads make up the remainder of expenses, those that are not direct.