Indirect costs

Indirect costs are costs that are not directly associated with a single activity, event, or other cost object. Such costs are frequently aggregated into an overhead cost pool and allocated to various activities, based on an allocation method that has a perceived or actual linkage between the indirect cost and the activity.

Examples of manufacturing indirect costs are:

  • Production management salaries and related benefits
  • Purchasing wages and related benefits
  • Quality assurance staff wages and related benefits
  • Equipment maintenance
  • Depreciation on factory equipment
  • Facility rent
  • Utilities

Examples of administrative indirect costs are:

  • Corporate salaries
  • Office supplies
  • Depreciation on office equipment
  • Facility rent
  • Utilities

Allocations of manufacturing indirect costs are required under the major accounting frameworks, such as GAAP and IFRS, but are not used as part of the direct costing methodology. Administrative indirect costs are charged to expense as incurred, and so are considered period costs.

Related Courses

Cost Accounting Fundamentals