PDSnet Glossary

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Definition

A fixed expense which must be paid irrespective of the level of sales. Good examples are rent, salaries and telephones. These expenses are sometimes referred to as "indirects" or fixed costs. Each of the company's products generates a contribution towards overhead costs and then profit after their variable or direct costs are paid. Obviously, the company should focus on those products which have the highest contribution. Companies with high annuity income such as service companies can sometimes cover their overheads with their debit order income before the month begins. These are the most attractive investments from a private investors point of view.

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