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Overhead is a general term describing indirect costs—i.e., all costs not directly related to manufacturing a product (cost of goods sold) or acquiring a product for resale (cost of sales). The indirect costs that make up overhead include fixed costs such as rent, “head office” costs, salaries and benefits, and semi-variable costs like fuel and electricity.

The total amounts are typically allocated to the profit and loss statements of individual business units as overhead charges. In that context, they are the outside managerial control of business unit managers and hence the word overhead can carry a negative connotation.

More about overhead

The categories of fixed and semi-variable costs that make-up overhead, are found in the income statement below in the indirect costs section.

Example of how fixed and semi-variable costs are found in an income statement
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