What do overhead costs refer to?

Overhead costs refer to the ongoing expenses that are necessary to operate a business but are not directly tied to the production of specific goods or services. These costs can include items such as utilities, rent, and administrative salaries, which support the overall operation instead of being directly attributed to individual products.

Understanding overhead costs is vital for effective budgeting and pricing strategies, as they must be accounted for to determine the total cost of producing goods or providing services. This allows businesses to set prices that cover all costs and maintain profitability. The other options are distinct categories of costs that do not accurately represent the broader nature of overhead costs. For instance, direct costs are explicitly tied to production, marketing expenses focus specifically on promoting products, and variable costs change based on production levels, which does not encompass the fixed nature of many overhead costs.