What is Corporate Overhead?

Corporate overhead is comprised of the costs incurred to run the administrative side of a business. These costs include the accounting, human resources, legal, marketing, and sales functions. This cost can be quite substantial for a larger business that runs a number of subsidiaries, since it may have centralized accounting, purchasing, and legal functions.

What Costs are Included in Corporate Overhead?

The types of costs that will be included in corporate overhead will vary by company, but will generally include the following items:

Administrative costs. Includes the compensation for executive leaders, management, and administrative staff, as well as the related payroll taxes and benefits. The cost of office supplies and equipment are also included.
Rent and utilities. Includes the cost of rent or lease corporate office space, as well as the utility bills incurred for this location.
Information technology. Includes the cost of software licenses, hardware costs, cybersecurity, and IT services.
Professional fees. Includes the fees for legal, accounting, consulting, and auditing services.
Marketing. Includes the cost of general corporate branding and public relations, as well as sponsorships and company-wide advertising.
Insurance. Includes the costs of general liability insurance, directors and officers insurance, and property insurance for corporate facilities.
Depreciation and amortization. Includes the costs of depreciation and amortization on corporate-owned tangible and intangible assets, respectively.
Training and development. Includes the costs of corporate-level training programs and leadership development initiatives.
Travel and entertainment. Includes travel expenses for the corporate staff.
Compliance and regulatory costs. Includes the cost of compliance with labor laws, environmental regulations, and safety standards.
Miscellaneous corporate services. includes the costs of security services for corporate offices, as well as subscriptions and memberships to industry associations.

Accounting for Corporate Overhead

When corporate costs are incurred, they are considered to be period costs, and so are charged to expense as incurred. Unlike factory overhead, corporate overhead is not accumulated into a cost pool and then allocated to the number of units produced.

Corporate Overhead Allocations

The concept of corporate overhead is somewhat different in a multi-subsidiary company. In this situation, corporate overhead is considered to be the cost to operate the corporate parent. The people working at the parent entity are engaged in such activities as setting policies and procedures for the subsidiaries, reporting consolidated results, and engaging in merger and acquisition activities. The management of the company may choose to allocate these overhead costs to the subsidiaries owned by the parent, based on some activity measure, such as the sales or profits of the subsidiaries. This accounting treatment is not recommended, since it skews the reported profitability of the subsidiaries, hiding their true profitability. A better approach is for the costs of the corporate parent to be immediately charged to expense with no allocation elsewhere.

Impact of Corporate Overhead on Breakeven

Corporate overhead always increases the breakeven point of a business, since it increases the cost base of the organization. For this reason, it is good practice to maintain tight control over these costs. In many cases, a business experiencing financial difficulties will cut its corporate overhead costs first, in order to reduce expenses that do not have a direct impact on sales.