Usually, a stakeholder, investor or financial planner may want to know what are overhead expenses when it comes to your business. The answer is simple. Overhead expenses refer to
business expenses that are not directly related to a product or service manufactured or offered by the business.
Calculating overhead expenses is essential since it allows a business to plan its budget and price its products and services correctly. These expenses can be fixed, variable or hybrid, depending on the business.
Consider this example to get better clarity on the overhead expenses meaning: Say you own a paper manufacturing business, which needs machinery to produce, cut and pack the paper. The electricity bill that you need to pay is an overhead expense. It may vary based on the production in that particular month.
Other overhead expenses include insurance payments, internet bills, rent, employee bonuses and other perks as well as administrative expenses.