What is Administrative Overhead?

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.

Administrative overhead includes the expenses related to the administration and general operations of the business. Examples include office supplies, wages for general secretaries, accountants, receptionists and other office workers, and management salaries.

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.