What is Administrative Overhead?

Administrative overhead is those costs not involved in the development or production of goods or services. This is essentially all overhead that is not included in manufacturing overhead. This can be a substantial proportion of all costs incurred in businesses that are not directly engaged in the production of goods. For example, a software development company will have a comparatively large amount of administrative overhead.

Examples of Administrative Overhead

Examples of administrative overhead costs are noted below:

Salaries of administrative staff. These are wages paid to non-production employees such as receptionists, HR personnel, and office managers who support day-to-day operations.
Office supplies. Costs for pens, paper, printer ink, and other general supplies used in administrative tasks contribute to overhead.
Utilities for office space. Electricity, water, heating, and internet services used in administrative areas are necessary ongoing expenses.
Office rent or lease. Payments for space used by administrative departments, like finance or executive offices, are a fixed overhead cost.
Depreciation on office equipment. The gradual expense of computers, printers, and furniture used in administrative work is considered overhead.
Insurance premiums. Costs for policies covering general liability, property, and administrative staff health insurance are part of administrative overhead.
Legal and accounting fees. Professional services hired for compliance, tax filings, and legal advice support administrative functions.
Software subscriptions. Licensing fees for accounting software, payroll systems, or communication tools like email and scheduling platforms fall under overhead.
Travel and entertainment for admin staff. Expenses for business-related travel or meetings by executives or administrative teams are overhead items.
Telephone and communication costs. Charges for landlines, mobile phones, and business communication systems used by admin personnel are included in overhead costs.

Accounting for Administrative Overhead

Administrative overhead is classified as a period cost. This means that costs incurred within a reporting period are assumed to be directly associated with it, and so must be recognized in the period incurred. Thus, administrative overhead is not capitalized into the cost of inventory, and so does not carry forward into future periods as an asset.