Administrative overhead is those costs not involved in the development or production of goods or services.
Companies can categorize their expenses into two categories: direct expenses and indirect expenses. Direct expenses are those that contribute directly to the product or service. For example, the cost of administering a large company is an indirect cost that must be spread over a number of products or services.” Overhead expenses can be divided into three categories: company overhead, administrative overhead and selling overhead.
This is essentially all overhead that is not included in manufacturing overhead. Examples of administrative overhead costs are the costs of:
- Front office and sales salaries, wages, and commissions
- Office supplies
- Outside legal and audit fees
- Administration and sales office lease
- Administration and sales utilities
- Administration and sales telephones
- Administration and sales travel and entertainment
Administrative overhead is considered a period cost; that is, the benefit of this type of cost does not carry forward into future periods.