![]() Many overhead costs are fixed in nature, which means that they do not change with the volume level. Common examples of overhead costs found in many businesses are as follows: For example, the overhead costs incurred by a casino will vary dramatically from those incurred by a manufacturer of sports equipment. The exact types of overhead costs incurred will vary by business. A quarterly review of overhead costs is recommended, to ensure that these costs do not get out of hand. Or, a firm invests in an expensive copier machine, despite experiencing relatively low photocopying volumes. For example, a business might have rented too much office space, and should sub-lease it whenever the activity level of the business declines. There tends to be a lower level of oversight for overhead costs, so they can linger within a business, even when they are no longer needed. It is essential for management to monitor overhead costs at all times, since they can bleed off profits. Thus, the cost of the manufacturing supervisor, materials handling staff, and facility rent are all classified as overhead costs, while the costs of direct materials are not overhead costs. Overhead costs are any operational expenses stated in a company’s income statement that are not directly associated with the cost of goods or services. They must be incurred in order to stay in business, irrespective of the sales level of the organization. Overhead costs are any expenditures not directly associated with the creation of a product or service.
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