What are Indirect Costs

Indirect costs are also known as overheads. These are not directly related with any particular product. Indirect costs may be either fixed or variable. Indirect costs include taxes, administration, personnel and security costs, and are also known as overhead.Indirect costs are those costs which cannot be directly, conveniently and wholly allocated to a physical unit of output. It can be further classified as indirect labour, indirect material and indirect expenses.

Indirect labour: – indirect labour is that labour which has been employed to do the tasks incidental to goods produced or services provided. They bring no physical change in conditions or con construction of products. For example, director/partner remuneration, sales staff, manager salary, foreman, chowkidar, time keeper, engineering departments, salaries etc. Indirect material: – that material which cannot be directly, conveniently and wholly attributable to a physical product. For example, stationary, printing oils and lubricants, consumables etc. it is non-substantial i.e. thread used in manufacturing suit piece and nails in manufacturing sofa set etc are indirect material. Indirect expenses: – those expenses which cannot be directly, conveniently and wholly allocated to a product. For example, lighting, rent of factory and office etc. all indirect materials, labour and expenses are called overheads. They are common to all units produced in that time period.

Indirect costs are those for activities or services that benefit more than one project. Their precise benefits to a specific project are often difficult or impossible to trace. For example, it may be difficult to determine precisely how the activities of the director of an organization benefit a specific project. Indirect costs do not vary substantially within certain production volumes.

Other examples of indirect cost are:-

Accounting and legal expenses Administrative salaries Office expenses Rent Telephone expenses Utilities

Thedocumentation of indirect cost allocationvaries from one company to another. Some companies create a general line item that accounts for all indirect costs. Some companies choose to create a line item in the budgets of each department and then divide the overhead among them equally.