Overhead Rate

finance a la shmoop. what is overhead? it's a bird it's a plane it's Shmooperman!

yeah okay we couldn't resist. any on its overhead but has nothing to do with [man wearing cape flies across the sky]

overhead. alright your company is slink Inc. you make yes of course slinkys. they

walk downstairs a loner in pairs and make a slinkity sound.

yeah those. your primary costs in making them are miles and miles and miles of

flattish wire that kind of smells funny. and then a twisty machine thing then you

heat them up so they remain in that slinky shape forever and well you're

pretty much. done sorta. you've made the product but like where does that product

to live? well you store it here in the slinky condo birthing chamber and you [slinky in a log cabin]

have to rent the warehouse where all of these things live until they get shipped

off to you know the good boys and girls and men with midlife crises all around

the world. all right well that rent is overhead. the shipping of the product

overhead. insurance you need to maintain so that if a slinky drops on someone's

head and spins their hair all around they have to shave or at least that's

the reason we're giving for our baldness at home. that insurance overhead. the

lawyers who had to defend that a head case yep overhead. overhead is basically

everything that isn't directly useful at least in getting a product built and

bought. and it's usually a fixed cost meaning that you can't usually get rid

of overhead no matter how hard you try. like rent lawyers insurance yeah go

negotiate with them. they charge what they charge each month and there's just

not a whole lot you can do about it even if you want it to. oh and the CEO of the [woman throws stacks of cash on a desk]

company the one who meets with Wall Street people and shakes hands with the

people at Amazon well she's overhead. - yeah they really

should put a warning on those things. [man frowns]