Commercial Applications
Which of the following is best suited meaning of overhead?
- Overhead is the cost incurred in the course of buying a product, providing a service or running a department, but which cannot be traced directly and in full to the product, service or department.
- Overhead is the cost incurred in the course of making a product, providing a service or running a department, but which cannot be traced directly and in full to the product, service or department.
- Overhead is the cost incurred in the course of selling a product, providing a service or running a department, but which cannot be traced directly and in full to the product, service or department.
- Overhead is the cost incurred in the course of advertising a product, providing a service or running a department, but which cannot be traced directly and in full to the product, service or department.
Cost
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Answer
Overhead is the cost incurred in the course of making a product, providing a service or running a department, but which cannot be traced directly and in full to the product, service or department.
Reason — The standard definition of overhead refers to indirect costs incurred while making a product, providing a service or running a department which cannot be traced directly. Buying, selling and advertising are too narrow — they cover only one aspect (purchase or selling overheads). The "making" version is the comprehensive textbook definition that captures the essence of overhead as indirect costs of operations.
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