Overhead refers to the ongoing expenses that a business incurs to operate, which are not directly tied to producing goods or services. These costs can include rent, utilities, salaries of administrative staff, and office supplies. Understanding overhead is crucial for businesses to manage their finances effectively and ensure profitability. In accounting, overhead is often categorized into fixed and variable costs. Fixed costs remain constant regardless of production levels, such as lease payments for a building. In contrast, variable costs can fluctuate with business activity, like utility bills that may increase with higher usage. Managing these costs helps businesses maintain financial health.