What do overhead costs primarily entail in a business?

Overhead costs primarily represent the fixed costs associated with running a business that are not directly tied to the production of goods or services. These costs are necessary for the overall operation and maintenance of the business and can include rent, utilities, salaries of administrative staff, and insurance. Since these expenses do not vary directly with production levels, they are categorized as fixed costs, meaning they must be paid regardless of how much or how little a business produces.

Understanding overhead costs is crucial for budgeting and financial planning, as they impact the overall profitability and pricing strategies of a company. This knowledge allows businesses to ensure they cover all necessary expenses when determining product prices or assessing overall financial health.