Indirect expenses

Indirect expenses are those expenses that are incurred to operate a business as a whole or a segment of a business, and so cannot be directly associated with a cost object, such as a product, service, or customer. A cost object is any item for which you are separately measuring costs. Examples of indirect expenses are:

  • Accounting, audit, and legal fees
  • Business permits
  • Office expenses
  • Rent
  • Supervisor salaries
  • Telephone expense
  • Utilities

Indirect expenses may or may not be allocated. For example, office administrative costs are indirect expenses, but are rarely allocated to anything, unless it is corporate overhead and is being allocated to subsidiaries. These types of indirect expenses are considered period costs, and so are charged to expense in the period incurred.

Indirect expenses that are factory overhead will be allocated to those units produced in the factory during the same period that the indirect expenses were incurred, and so will eventually be charged to expense when the products to which they were allocated are sold. Examples of items included in factory overhead are:

  • Production supervisor salaries
  • Quality assurance salaries
  • Materials management salaries
  • Factory rent
  • Factory utilities
  • Factory building insurance
  • Fringe benefits
  • Depreciation
  • Equipment setup costs
  • Equipment maintenance
  • Factory supplies
  • Factory small tools charged to expense

The reverse of indirect expenses are direct expenses, which are directly associated with cost objects. Examples of direct costs are:

Related Courses

Cost Accounting Fundamentals