Overhead costs in bookkeeping are all those expenses that are used to manage a business. These expenses are those deducted from the proceeds that constitute the gross operating profit margin of the commercial activity. To have the net margin, you must deduct the income tax payable to the state. Overhead involves general expenses that are common in both the manufacturing and service sectors. These expenses can include rent, salaries or wages, utilities, insurance, taxes, and other expenses to run the business. Some examples of the industries in which overhead costs play a fundamental role include:
Overhead Costs in Retail Industry
In the retail industry, there are different types of costs for doing business. A common practice is that the goods or products have to be manufactured before selling in the market. The cost associated with the process refers to the direct overhead costs of production. Besides, the cost incurred in the term to pay the retail workers who directly participate in sales, such as sellers and cashiers, refers to the direct labor overhead costs. Also, the additional costs of the business are classified as indirect costs. For example, labor costs for executives who do not have direct sales (i.e., accountants, staff, and managers) are an example of indirect costs or overhead costs. Rental in commercial premises is another form of administrative or property expense in the retail industry. Other types of costs include the cost of public services, such as electricity, water, telephones and Internet services, consumables (i.e., bags for customers and receipts for paper prints), and so on.
Overhead Cost in Construction Industry
Overhead costs are defined as the ongoing expenses that are necessary for running a business. Overhead costs are different in the construction industry compared to the company operating in any other sector. The work nature in the construction industry requires an association with independent contractors, regular change of location, rent of equipment, and labor expenses, which distinguish it from any other industry. The overhead costs in the construction industry can be categorized as direct overhead costs and indirect overhead costs. The example of such direct overhead costs in the construction industry includes the salaries, employees’ compensation, and payment to staff (e.g., bookkeepers, managers, and administrators) who do not work on the actual work site. Furthermore, overhead costs in the construction industry further include the business’s physical office, rent, public services, telephone lines, Internet services, insurance, marketing, advertising, travel and legal expenses, and so on. Besides, overhead costs at the worksite include the expenses associated with trailers, project fees, hand drills, cranes, excavators, sanitary installation, drinking water expenses, supervisors at work, and so on.
Overhead Costs in Apparel Industry
Overhead costs in the apparel or garment industry include the costs that are not directly related to production. Regardless of the number of garment factories that produce income from the plant, they must meet the monthly fixed costs. Depending on the organizational structure, the example of overhead costs may vary from factory to factory. When calculating the overhead costs of a production plant, only the overall costs of the plant are considered. In contrast, if you calculate the overhead costs of a construction business that has marketing, design, sales, and warehouse departments, then there will have many other parameters of determining overhead costs. Common overhead costs in a garment or apparel industry may include building rent, salaries, electricity bills, phone bills, internet bills, transport expenses, expenses on consumables i.e., diesel or chemicals for finishing department, pantry expenses, administration cost, housekeeping, employees’ welfare expenses, printing, overtime expenses, stationery, and so on.
Overhead Costs in Furniture/Fixture Industry
In the furniture industry, production of an item requires materials to be purchased, salaries/wages to be paid to workers, and other expenses that are directly and indirectly associated with the production process. The common example of overhead costs in furniture/fixture industry includes indirect material (i.e., oil lubricants, stationery, consumable stores, printing, glue, cotton waste, nails, and polish); indirect labor (i.e., salesmen’s salaries, wages of storekeepers and security guards, directors’ fees, etc.); and other indirect expenses (i.e., rent, depreciation, lighting, insurance charges, etc.).
Overhead Costs in the Hotel and Tourism Industry
The term indirect costs, which can be fixed or variable in the hotel industry, is used to distinguish expenses directly related to hotel accommodation and non-commercial and commercial costs. The common example or role of overhead costs in hotel and tourism industry include wages to employees, employees health premium, maintenance fees, advertising cost, reservation expenses, guest room amenities, laundry operations, transportation, administration & general expenses and so on.
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