Plain definition
Overheads are indirect costs of running a function, site, or business, such as shared supervision, rent, systems, and support staff. Whether a cost is overhead depends on the cost object and reporting purpose.
Illustrative example
Monetary examples use Saudi riyals (SAR). The same principles apply in other currencies.
A workshop adds overhead per unit for planning. A special order uses spare capacity and requires no extra supervisor or rent. The sales lead should compare the order’s price with incremental material, labour, and order-specific costs, then separately consider whether it contributes to existing overhead.
Why it matters
Using a full overhead charge for every short-term choice can reject contribution; ignoring overhead in long-run pricing can leave the business unable to fund its shared base.
Practical consequence
Maintain an overhead schedule by function, distinguish committed from decision-driven overhead, and use a stated basis for long-run product prices.