Administration cost is the cost of running the administration of a firm. In order to understand more clearly, let us understand the administrative functions of a business firm. Administrative functions include strategy and policy formulation, directing the organization towards the objectives determined by the top management and controlling various operations of the organization. Though these functions are not directly related to production, selling, and distribution, they facilitate these functions.
The expenditure incurred for carrying out these functions is called as ‘Administration Overheads’. Examples of administrative overheads are general office expenses, office salaries, printing and stationery, office lighting, audit fees, insurance of office equipment, depreciation of office equipment and building, rent, legal charges, repairs of office premises and machinery, traveling expenses of office staff, etc.