What is meant by 'overhead' in accounting?

Overhead in accounting refers to the indirect costs incurred by a business that are necessary for operations but cannot be directly traced to a specific product or service. These costs include expenses such as rent, utilities, insurance, and salaries of administrative staff. Since these costs support the overall operation of the business rather than being tied to any individual product or service, they are classified as overhead.

Understanding overhead is crucial for cost management and pricing strategies, as it helps businesses allocate total costs effectively, ensuring that pricing covers both direct and indirect costs. This knowledge enables businesses to maintain profitability while managing operational efficiency. The other options focus on direct costs or revenue, which do not fit the definition of overhead costs, highlighting how overhead uniquely represents those indirect expenses essential for running a business.