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What does overhead refer to in management finances?
Total fixed cost
Variable costs associated with production
Employee salaries and wages
Marketing and advertising expenses
The correct answer is: Total fixed cost
Overhead in management finances refers to the total fixed costs that a business incurs in order to operate, which are not directly tied to the production of goods or services. These costs are necessary for running the company and include expenses such as rent, utilities, insurance, and salaries of employees not directly involved in production. Understanding overhead is crucial for financial management, as it helps organizations calculate the total cost of production and determine pricing strategies. This concept is distinct from variable costs, which fluctuate with production levels, and other specific expenses like employee wages or marketing costs, which are considered separately in financial analysis. By assessing overhead accurately, managers can better control costs and optimize budget allocation, ultimately contributing to the overall financial health of the organization.