What Is Corporate Overhead?

by Sam Ashe-Edmunds, Demand Media
Corporate overhead includes non-manufacturing costs.

Corporate overhead includes non-manufacturing costs.

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Corporate overhead refers to the costs of operating a company not directly related to making a product or service. The manufacturing cost of a widget might include steel, plastic and labor, while the overhead costs to bring that widget to market would include the expenses to run the office, such as rent, utilities, computers and personnel. Other corporate overhead costs would include marketing, business licenses and insurance.


When creating a budget, businesses use different terms to describe basic costs. The actual costs to make a pizza, such as the flour, cheese, sauce and toppings, are often called manufacturing, or hard, costs. Some business include costs such as the electricity to run the oven and maintenance on the equipment used to make the pizza in manufacturing costs. The costs to run the business so you can sell the pizzas are called overhead costs.

Corporate vs. Location Overhead

Companies that have multiple locations may be managed by one main office, often known as the corporate office. For example, a restaurant chain might have 100 restaurants, but one national office that sets policies, decides on menu items for all the locations, conducts national marketing and provides other functions for all of the restaurants. The cost to run this main office is known as corporate overhead. A single restaurant would then have its own overhead and corporate overhead expenses. For example, one restaurant location of a national pizza chain would have its hard costs for making a pizza, its store overhead for running its unit and a corporate overhead expense it would have to pay each month.

Calculating Overhead

Businesses use different formulas for calculating overhead. Some lump all non-manufacturing costs into overhead and divide these costs into the production expense for all products. Some business calculate overhead by department, since not all products or services use the same amount of marketing, sales, website technology or labor. Some businesses include labor expense as part of manufacturing costs. Among these companies, some only include the wages of workers as part of manufacturing costs, while others include the total cost of a worker, including benefits, insurance and taxes.

Applying Overhead

You can apply overhead in different ways. You can divide your overhead costs into the number of units you produce to get the overhead cost for each unit. For example, if your overhead is $100,000 annually and you sell 25,000 pizzas, your overhead cost per pizza is $4. This requires that you estimate your annual overhead costs in advance, or total them at the end of the year. Some companies use formulas, such as a percentage of revenues, to apportion overhead.

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