Indirect cost
A cost that cannot be easily and conveniently traced to a specified cost object.
Indirect costs, also known as overhead costs, are expenses incurred by a business or organization that cannot be directly linked to a specific product, service, or project. These costs are necessary for the operation and production of goods and services but are not directly related to the finished product. Examples of indirect costs include rent, utilities, salaries for support staff, office supplies, and maintenance expenses.
Since indirect costs are not directly related to the production of specific goods or services, they are usually allocated across the different products or services provided by a business or organization based on a predetermined allocation method. This ensures that each product or service bears a portion of the indirect costs incurred by the business.
Indirect costs are important for organizations to consider when calculating the true cost of producing goods and services. Failing to allocate indirect costs appropriately can lead to inaccurate cost estimates, which may impact pricing decisions, profitability, and long-term business viability.
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