What type of cost is project overhead categorized as?

Project overhead is categorized as an indirect cost because it cannot be directly traced to a specific project or activity. Instead, overhead represents expenses that are necessary for the general operation of the business but do not directly contribute to the production of goods or services. Examples of project overhead include administrative salaries, utilities, and office supplies that support multiple projects.

Understanding that overhead is indirect helps differentiate it from direct costs, which can be directly attributed to a specific project, such as materials and labor specific to that project. Additionally, while overhead can include fixed costs (like rent), it often contains variable components as well, making it essential to identify it specifically as an indirect cost. This classification is important in project management and accounting as it affects budgeting, pricing, and financial reporting.