Administrative overheads include items such as utilities, strategic planning, and various supporting functions. These costs are treated as overheads due to the fact that they are not directly related to any particular function of the organization, nor do they directly result in generating any
profits. Instead, these costs simply take on the role of supporting all of the business's other functions. Charities may refer to their administrative overheads as "core costs". Universities regularly charge administrative overhead rates on research. In the U.S. the average overhead rate is 52%, which is spent on building operation, administrative salaries and other areas not directly tied to research. Academics have argued against these charges. For example,
Benjamin Ginsberg showed how overhead rates are primarily used to subsidize ballooning administrative salaries and building depreciation, neither of which directly benefit research; although it does benefit the administrators that determine university policy in his book
The Fall of Faculty. An article written by
Joshua Pearce in
Science argued that overhead accounting practices hurt science by removing funds from research and discouraging the use of less-expensive
open-source hardware. He went into detail on the accounting, showing how millions were wasted each year on overhead cash grabs by university administrators in
ZME Science.
Examples Employee salaries This includes mainly monthly and annual
salaries that are agreed upon. They are considered overheads, as these costs must be paid regardless of sales and profits of the company. In addition, salary differs from wage as salary is not affected by working hours and time, therefore will remain constant. In particular, this would more commonly apply to more senior staff members as they are typically signed to longer-tenure contracts, meaning that their salaries are more commonly predetermined.
Office equipment and supplies This includes office equipment such as printer, fax machine, computers, refrigerator, etc. They are equipment that do not directly result in sales and profits as they are only used for supporting functions that they can provide to business operations. However, equipment can vary between administrative overheads and manufacturing overheads based on the purpose of which they are using the equipment. For example, for a printing company, a printer would be considered a manufacturing overhead.
External legal and audit fees This includes the cost of hiring external law and
audit firms on behalf of the company. This would not apply if company has own internal lawyers and audit plans. Due to
regulations and necessary annual audits to ensure a satisfactory work place environment, these costs often cannot be avoided. Also, since these costs do not necessarily contribute directly to sales, they are considered as indirect overheads. Although in most cases necessary, these costs can sometimes be avoided and reduced.
Company cars Many companies provide usage of company cars as a
perk for their employees. Since these cars do not contribute directly to sales and profits, they are considered an overhead. Similar company perks that are a one-off or constant payment such as partner
contract fees with a gym will also fall under administrative overheads.
Travel and entertainment costs This will include company-paid business travels and arrangements. As well as refreshments, meals, and entertainment fees during company gatherings. Although one might argue that these costs motivate workers to become more productive and efficient, the majority of economists agree that these costs do not directly contribute to sales and profits, therefore shall be categorized as an administrative overhead. Despite these costs occurring periodically and sometimes without prior preparation, they are usually one-off payments and are expected to be within the company's
budget for travel and entertainment. == Manufacturing overheads ==