What are indirect costs?

Indirect costs refer to expenses that cannot be directly attributed to the production of a specific product or service. These costs are necessary for the overall functioning of a business and support multiple activities. Examples of indirect costs include administrative salaries, utilities, and rent for production facilities. They are different from direct costs, which can be directly linked to the manufacturing or provision of a product or service.

Understanding indirect costs is crucial for businesses as they need to factor these into pricing strategies and budget planning. By accurately identifying and allocating indirect costs, companies can ensure they are covering all expenses associated with their operations, leading to better financial management and profitability.