Definition of Overhead

Definition of Overhead:

In business accounting, overhead is general operating expenses, including such items as heat and electricity for the premises, that have no direct relationship to the production or selling of a company’s goods and services. In computers, overhead refers to the processing time required by system software, which includes the operating system and any utility that supports application programs. Overhead sometimes describes the amount of processing time the installation of a particular feature will add to the amount already required by the program. It is important not just for budgeting purposes, but for determining how much a company must charge for its products or services to make a profit.Ongoing operational expenses incurred by a business. These expenses may be referred to as operational costs. Items such as utilities, rent, subscriptions are all examples of overhead expenses.

There are various ways in which the overheads can be classified:

Element wise Classification:
-Indirect material
-Indirect labour
-Indirect expenses

Function wise:
-Factory Overheads
-Administration Overheads
-Selling and Distribution Overheads

Variability wise:
-Fixed Overheads
-Variable Overheads
-Semi-Variable Overheads

Controllability wise:
-Controllable Overheads
-Uncontrollable Overheads

Normality wise:
-Normal Overheads
-Abnormal Overheads

In telecommunications, overhead refers to the processing time required by codes for error checking and control of transmissions.An accounting term that refers to all ongoing business expenses not including or related to direct labor, direct materials or third-party expenses that are billed directly to customers. Overhead must be paid for on an ongoing basis, regardless of whether a company is doing a high or low volume of business.