Overhead (business)
Overheads are the expenditure which cannot be conveniently traced to or identified with any particular revenue unit, unlike operating expenses such as raw material and labor.
[4] Administrative overheads include items such as utilities, strategic planning, and various supporting functions.
In the U.S. the average overhead rate is 52%, which is spent on building operation, administrative salaries and other areas not directly tied to research.
For example, Benjamin Ginsberg showed how overhead rates are primarily used to subsidize ballooning administrative salaries and building depreciation, neither of which directly benefit research; although it does benefit the administrators that determine university policy in his book The Fall of Faculty.
[8] He went into detail on the accounting showing how millions were wasted each year on overhead cash grabs by university administrators in ZME Science.
They are equipment that do not directly result in sales and profits as they are only used for supporting functions that they can provide to business operations.
[13] This includes the cost of hiring external law and audit firms on behalf of the company.
Due to regulations and necessary annual audits to ensure a satisfactory work place environment, these costs often cannot be avoided.
Similar company perks that are a one-off or constant payment such as partner contract fees with a gym will also fall under administrative overheads.
[16] Despite these costs occurring periodically and sometimes without prior preparation, they are usually one-off payments and are expected to be within the company's budget for travel and entertainment.
[17] Manufacturing overheads are all costs endured by a business that is within the physical platform in which the product or service is created.
[18] Whilst administrative overheads is typically categorized within some sort of back-office or supporting office.
Although the rent for the building provides the physical platform for the company to produce its products and services, it is not a direct contributor.
[27] Standardized utility bills are also oftentimes discouraged by governments as it leads to wastage of resources and negative externalities of production.
Contribution refers to sales of the product or service, it can also be interpreted as the business's revenue stream.
Business overheads in particular fall under current liabilities as they are costs for which the company must pay on a relatively short-term/immediate basis.
