In business, overhead or overhead refers to ongoing business operating costs. Overhead is an expense that can not be easily traced or identified with a specific unit of cost, unlike operational costs such as raw materials and labor. Therefore, overhead can not be directly attributed to the product or service offered, so it does not generate profits directly. However, overhead costs are still important for business operations because they provide important support for businesses to engage in profit-making activities. For example, overhead costs such as factory leases allow workers to create products that can then be sold for profit. These costs are incurred for output in general and not for specific work orders; for example, wages paid to supervise and deter staff, heat and charge factory costs, etc. Overhead is also a very important cost element along with direct materials and direct labor.
Overhead is often associated with accounting concepts such as fixed costs and indirect costs.
The overhead costs of all expenses in the income statement except for direct labor, direct materials, and direct costs. Overhead costs include accounting fees, advertising, insurance, interest, legal fees, workload, rent, repairs, inventory, taxes, telephone bills, travel expenses, and utilities.
There are basically two types of business overhead. Administrative overhead and manufacturing overhead.
Video Overhead (business)
Overhead administratif
Administrative overhead includes items such as utilities, strategic planning, and various support functions. These costs are treated as an additional cost due to the fact that they are not directly related to a particular function of the organization nor do they directly generate any profit. Instead, these costs only take on the role of supporting all other business functions.
Universities regularly charge additional administrative fees for research. In the US, the average fixed rate is 52%, which is spent on building operations, administrative salaries, and other areas not directly related to the research. Academics have denied these allegations. For example, Benjamin Ginsberg shows how overhead rates are mainly used to subsidize inflated administration salaries and build depreciation, both of which do not directly benefit research; though it benefits the administrators who set university policy in his book The Fall of Faculty. An article written by Joshua Pearce in Science argues that overhead accounting practice harms science by removing funds from research and minimizing the use of less expensive open source hardware. He explains in detail about accounting that shows how millions of people are wasted each year on cash taken by university administrators at ZME Science.
Example
Employee salary
This includes approved monthly and annual salary. They are considered overheads because these costs must be paid regardless of the sales and profits of the company. In addition, salaries differ from wages because salary is not influenced by working hours and time, therefore it will remain constant. In particular, this will be more common for more senior staff members because they are usually signed for longer tenure contracts, which means that their salaries are more commonly predetermined.
Office tools and supplies
This includes office equipment such as printers, fax machines, computers, refrigerators, etc. They are devices that do not directly generate sales and profits because they are only used to support the functions they can provide for business operations. However, equipment may vary between administrative costs and production costs based on the intended use of the equipment. For example, for a printer printing company would be considered a production cost.
Legal and external audit fees
This includes the costs of hiring external law and audit firms on behalf of the company. This will not apply if the company has its own internal lawyer and audit plan. Due to the annual regulations and audits required to ensure a satisfactory workplace environment, these costs are often unavoidable. Also, since these costs do not necessarily directly contribute to sales, they are considered indirect overhead costs. Although in many cases it is necessary, these costs can sometimes be avoided and reduced.
Company car
Many companies provide the use of company cars as an expansion for their employees. Because these cars do not contribute directly to sales and profits, they are considered overhead. Similar corporate facilities that are either a one-time or constant payment such as contract partner fees with a fitness center will also be charged an administrative fee.
Travel and entertainment costs
This will include travel and company paid business arrangements. As well as drinks, food, and entertainment expenses during company meetings. Although one might argue that these costs motivate workers to be more productive and efficient, the majority of economists agree that these costs do not directly contribute to sales and profits, therefore they should be categorized as administrative costs. Although these costs occur periodically and sometimes without prior preparation, they are usually a one-time payment and are expected to be within the company's budget for travel and entertainment.
Maps Overhead (business)
Producing overhead
Manufacturing overhead is all costs borne by businesses that are within the physical platform in which the product or service is created. The difference between production costs and administrative costs is that production costs are categorized in the factory or office where the sale is made. While administrative costs are usually categorized in a kind of support office or support office. Although there are cases when two physical buildings may overlap, it is the use of overheads that separate them.
Example
Employee salary
Although the general concept is identical to the example under administrative costs, the main difference is the role of the employee. In the case of production overhead, employees will have roles such as maintenance personnel, manufacturing managers, materials management staff, and quality control staff. This will also include the wage set for the cleaning staff member. Again, the main difference lies in the nature of each job and the physical location in which their work is performed.
Depreciation of assets and equipment
This refers to the reduction in the value of the equipment as it becomes older and more obsolete. For example, if the printer has a useful useful life span of 5 years, the amount that can be sold will decrease annually. Therefore, the value in this depreciation is calculated as the cost of production. In addition, this also applies to vehicles because they tend to depreciate significantly after the first year. When calculating manufacturing overhead, accountants primarily use two methods: straight-line method and declining balance method.
Property Tax on Production Facility
Any property except government property is subject to some form of property tax. Therefore, taxes on production plants are categorized as production costs because they are unavoidable or canceled costs. In addition, property taxes have not changed with respect to the profit or sale of the business and will likely remain the same unless there is a change by government administration.
Factory Building Rental
Unless a business decides to buy land and build its own factory, it will incur some sort of lease because of the amount of capital needed to build a privately owned plant. Therefore, this lease must be paid to the owner on a regular basis regardless of business performance. Although building leases provide a company's physical platform for delivering products and services, it is not a direct contributor.
Utilities for Factory
This will vary depending on how the utility bill is structured. In case it becomes overhead, utility bills pre-negotiated means that the monthly utility bill will be the same regardless of the actual amount of consuming the plant. This will only be relevant in different countries where there is an option for standard utility billing. However, due to the huge consumption of electricity, gas and water in most factories, most companies tend not to have standard utility bills because they tend to be more expensive. Standardized electricity charges are also often discouraged by the government as they result in a waste of resources and a negative externality of production.
Business Overheads App
For most businesses, operational costs are calculated by accountants for budgeting purposes but also often so businesses have an idea of ​​how much they should charge consumers for a profit. The following are general accounting tools that take into account operational costs.
Break-Even Analysis
The breakeven analysis determines the point at which business revenue is equal to the cost required to receive the income. First of all calculate the safety margin (the point where the income exceeds the breakeven point) because it is the "safe" amount whose earnings can go down while still remaining above the break-even point. The graph on the right shows a typical break-even chart. Contribution refers to the sale of a product or service, it can also be interpreted as a stream of business income. Fixed costs in this case serve the same purpose as business overhead costs, it will only be shown as a straight horizontal line on the graph as shown.
Shut-Down Graphics
In economics, the income curve is often depicted to indicate whether a business should remain in business, or close. In theory, if a business is able to bear variable operating costs but can not cover its operational costs in the short run, the business must remain in business. On the other hand, if a business is not even able to cover its operational costs, it should be shut down. Although these rules differ greatly depending on the size of the business, the cash flow of the business, and the competitive nature of the business, it serves as a model rule for most competitive small businesses to operate.
Balance
A balance sheet is a financial statement that outlines a company's financial assets, liabilities, and shareholder's equity at any given time. Both assets and liabilities are separated into two categories depending on the time period; current and long term. Business overhead costs typically fall below current liabilities as they are a relatively short-term/relatively direct cost to companies. Although the balance sheet itself does not offer much information, it is a useful piece of financial information when combined with other documents such as profit or loss or ratio analysis because it offers a comprehensive and comprehensive description of the company's financial position.
See also
- Operating costs
- Expense ratio
References
Source of the article : Wikipedia
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