What are overhead costs?

Overhead costs refer to the ongoing expenses that a business faces that cannot be directly linked to the production of a specific good or service. These costs are crucial for maintaining the overall operation of the company but do not directly contribute to the manufacturing of products or the delivery of services. Examples of overhead costs include rent, utilities, salaries of non-production staff, and office supplies. Understanding overhead costs is essential for managing a business's finances, as they influence pricing strategies, budgeting, and financial forecasting.

In contrast, direct costs, as mentioned in other options, are expenses that can be directly traced to the production or provision of a product or service, such as raw materials and labor associated with manufacturing. Unforeseen expenses refer to unexpected costs that may arise during the course of business operations, which are not categorized as overhead. Finally, fees charged by financial institutions pertain to banking costs and account management, which are separate from the concept of overhead. Recognizing the distinction between these types of expenses helps business owners make informed financial decisions.