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Indirect Cost

Indirect costs are expenses that cannot be directly attributed to a specific product, service, or project but are necessary for the overall operation of a business. Examples include administrative expenses, rent, utilities, and overhead. Indirect costs are usually allocated across different departments or projects based on predetermined cost allocation methods. These costs are essential for the functioning of a business but are not directly tied to production or service delivery.

Example

The rent paid for a company's office space is an indirect cost, as it supports multiple projects and departments rather than a single product or service.

Key points

• Costs that cannot be directly tied to a specific project or product.

• Examples include rent, administrative salaries, and utilities.

• Allocated across departments or projects using cost allocation methods.

Quick Answers to Curious Questions

Indirect costs are allocated based on formulas or methods that distribute expenses across different departments or projects proportionally.

Common examples include rent, administrative expenses, utilities, and office supplies.

They support the general operation of the business, ensuring that essential services like administration, management, and facility upkeep are maintained.