In business, overhead or direct overhead cost refers to an expense of operating an organization. Direct overhead costs are those costs that are not linked to one particular overhead unit, such as labor or raw material. Examples include advertising, sales, supplies and office maintenance. Direct overhead costs do not include items that are indirectly connected to the operation of an organization, but rather those things that are directly related to the day-to-day operations of a business: supplies used in the performance of business activities and inventory and supplies used for storage purposes.
The amount of what is overhead can vary from case to case depending on the nature of the enterprise, the overhead being performed and the overhead cost allowance available at the time. When an enterprise incurs an overhead that it is unable to trace back to a specific cost unit, the case is considered an indirect overhead. Indirect overhead costs should be measured against the value of the services or the good that has been performed.
Indirect overhead cost may be incurred in various ways. For example, if an office building provides the service of mail, the building may have to bear the cost of a bell tower, security measures, electricity, water and various other overhead costs. Indirect overhead may also include the value of advice given by professionals and the services rendered by the public.
What is the overhead cost is a question that has preoccupied experts since the dawn of the industrial revolution. Even then, questions were raised about the validity of the practice of overhead cost allocation. In other words, there was a belief that what is overhead cost was not an accurate representation of the true cost of doing business. This resulted in a variety of practices all designed to reduce or eliminate what is overhead cost altogether. The reduction in what is overhead cost led to the practice of what is cost accounting.
There are two schools of thought on what is overhead cost. One school maintains that what is overhead cost is not an accurate representation of the cost of doing business. Rather, what is overhead cost is the difference between what is charged for a service done by an individual or company and what is charged for the same service provided by an institution such as a government agency. What is the overhead cost for companies therefore is the difference between the prices charged for corporate services by an individual or a company and the prices charged by government agencies.
The other school of thought maintains that what is overhead cost is an accurate representation of what is the actual cost of providing particular services. Thus, what is overhead cost in this sense is what is charged for services such as delivering a letter by mail or what is overhead for putting up a sign in the window. What is the overhead cost for a government agency is what is charged for services such as stamps, paper, ink, electricity, gas, water, and what is overhead for putting up a sign in the window. So you can see that these questions concerning what is overhead cost are irrelevant.
To answer the question as to what is overhead cost for individuals, it is important to understand the impact of inflation on overhead costs. Inflation simply means that costs for items tend to increase in price over time and this includes what is overhead cost in that it includes what is the cost of operating office equipment such as telephones and computer equipment. In most cases, it is very difficult to determine what is overhead cost as most costs go unseen by the customer because they are so high. For example, it is very difficult to determine what is overhead cost when you factor in what is the cost of employing a secretary to answer the phone when you call for a report.
The bottom line is that what is overhead cost for individuals is very difficult to assess accurately. In fact, many companies do not know what is overhead cost and assume that every dollar spent is a dollar earned. However, when the company factors in the cost of an audit, what is the overhead cost becomes clear. So make sure to ask what is overhead cost when you’re hiring a company for your advertising.