What is the primary purpose of overhead costs in accounting?

The primary purpose of overhead costs in accounting is to allocate costs that cannot be directly traced to specific products or services. Overhead costs include expenses such as rent, utilities, administrative salaries, and other general costs that support the overall operation of a business but are not directly attributable to a single product or service.

These costs are essential for providing a complete picture of total expenses incurred by a business. By allocating overhead costs appropriately, organizations can gain a more accurate understanding of product or service profitability, leading to better pricing decisions and operational efficiency. This allocation process often involves using cost drivers or bases to distribute these indirect costs among different cost objects.

Other options do not accurately represent the primary purpose of overhead costs. While funding for direct costs may be important in financial management, it is not the specific function of overhead costs. Enhancing cash flow visibility relates more to the timing of revenue and expenditure recognition rather than cost allocation. Minimizing fixed costs may be a financial strategy, but it does not capture the essence of overhead costs' role in accounting practices.