Question

Research, define and explain overhead costs. Use examples of companies and/or government agencies. 1500 words

Answer 1

Overhead costs are the additional costs incurred by a business other than the costs for manufacturing or producing its goods and services. The overhead costs are indirect costs that can be increased or decreased based on business needs and lesser overhead costs lead to more profitability as the total earned income or revenue is translated into gains. Overhead expenses can be fixed or variable. The costs like rentals, salaries, allowances, travel and food expenses, health and insurance benefits, marketing and promotion expenses are overhead expenses as they are additional to the procurement, production and sales costs related to the goods and services sold by business.

Lesser overhead costs means business is more efficient and lean. It is competitive and the cost savings can be turned into lesser sale prices for customers or more revenue available for investment into business areas. The overhead expenses can be controlled after monitoring and reviewing them regularly, assessing their significance and outcomes, necessity of the expenses and ways for reducing them. Automated work processes, use of cloud services, flexi employment opportunities are some examples of overhead costs reducing ways. It saves time and resources as well as the allocation of costs proportional to the results. In government sector, overhead expenses become higher due to the long term benefits given to employees irrespective of the business and economic conditions. The insurance, health allowance, accomodation add to the overhead expenses reducing the efficiency and profitability. Such sectors are invested into by government as support to the economy like education, transportation and public utilities as they are essential for building infrastructure and stable environment. In private sector, the overhead expenses can depend on business size and goals. The five days week is another way of reducing overhead costs as it saves power and gives non monetary benefits to the employees who are satisfied in receiving such benefits saving their transportation costs and time. The use of software and analytics to study cost categories and analyzing each category can be helpful in reducing overhead costs in ways that doesn't affects business adversely. Using marketing and promotion effectively and targeted towards customers can provide gains on investment in such costs and control can be done through monitoring and analysis.