Definition
Administration overhead, also known as administration expenses, refers to the portion of an organization’s general overhead incurred during the execution of its administrative activities. These expenses include costs related to general office salaries, stationery, telephones, and other essential items necessary for the smooth functioning of the organization’s administrative functions.
Examples
- Salaries of Office Staff: The wages paid to employees working in administrative roles such as the HR department, reception, and clerical staff.
- Stationery Costs: Expenses include paper, pens, folders, and other office supplies necessary for daily operations.
- Telecommunication Expenses: Costs associated with telephone usage, internet services, and other communication tools required to maintain business activities.
- Office Rent: The rental costs of office space utilized for administrative purposes.
- Utilities: Expenses for electricity, water, and heating required for the office premises.
Frequently Asked Questions
What is included in administration overhead?
Administration overhead includes various costs associated with running an organization’s administrative functions, such as salaries for office staff, stationery, telecommunication, office rent, and utilities.
How is administration overhead different from other overhead costs?
Administration overhead specifically pertains to costs incurred in administrative activities, while other overhead costs might include manufacturing overhead related to production or selling expenses related to marketing and sales activities.
Are administrative expenses fixed or variable costs?
Administrative expenses can be both fixed and variable. Fixed costs include salaries and office rent, while variable costs may include items like postage and office supplies, which fluctuate with business activity levels.
How can businesses reduce administrative overhead?
Businesses can reduce administrative overhead by optimizing the use of office space, negotiating better rates for telecommunications and utilities, and employing technology to improve efficiency and reduce manual labor.
Are administration overheads tax-deductible?
Yes, administration overheads are typically tax-deductible as they are necessary and ordinary expenses incurred in carrying out business operations.
Related Terms
Overhead
General costs and expenses required to operate a business that are not directly associated with product manufacturing or sales activities.
Fixed Costs
Expenses that do not change with the level of goods or services produced by the business, such as rent and salaries.
Variable Costs
Costs that vary directly with the level of business activity, such as raw material costs and utility expenses.
General and Administrative Expenses (G&A)
A broader category encompassing all indirect expenses related to the general administration and management of the business.
Online References
- Investopedia: Administrative Expenses
- Accounting Tools: Administrative Overhead
- The Balance SMB: Reducing Administrative Costs
Suggested Books for Further Studies
- “Accounting Made Simple: Accounting Explained in 100 Pages or Less” by Mike Piper - This book provides foundational layers of accounting, including overhead concepts.
- “Financial Accounting: The Impact on Decision Makers” by Gary A. Porter and Curtis L. Norton - A comprehensive guide to financial accounting principles and practices.
- “Cost Accounting: A Managerial Emphasis” by Charles T. Horngren - Focuses on various aspects of overhead and cost management.
- “Management and Cost Accounting” by Alnoor Bhimani and Charles T. Horngren – Covers in-depth cost accounting and management strategies, including administrative overheads.
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