Indirect costs

Indirect costs

Indirect costs are costs that are not directly accountable to a cost object (such as a particular function or product). Indirect costs may be either fixed or variable. Indirect costs include taxes, administration, personnel and security costs, and are also known as overhead.

There are two types of Indirect Costs. One are the Fixed Indirect Costs which contains activities or costs that are fixed for a particular project or company like transportation of labour to working site , building temporary roads etc. The other are Recurring Indirect Costs which contains activities that repaeat for a particular company like Maintenance of Records or payment of Salaries

Indirect vs Direct costs

Direct costs are those for activities or services that benefit specific projects, e.g., salaries for project staff and materials required for a particular project. Because these activities are easily traced to projects, their costs are usually charged to projects on an item-by-item basis.

Indirect costs are those for activities or services that benefit more than one project. Their precise benefits to a specific project are often difficult or impossible to trace. For example, it may be difficult to determine precisely how the activities of the director of an organization benefit a specific project. Indirect costs do not vary substantially within certain production volumes or other indicators of activity, and so are considered to be fixed costs.[1]

It is possible to justify the handling of almost any kind of cost as either direct or indirect. Labor costs, for example, can be indirect, as in the case of maintenance personnel and executive officers; or they can be direct, as in the case of project staff members. Similarly, materials such as miscellaneous supplies purchased in bulk—pencils, pens, paper—are typically handled as indirect costs, while materials required for specific projects are charged as direct costs.

Examples

Costs usually charged directly

  • Project staff
  • Consultants
  • Project supplies
  • Publications
  • Travel
  • Training

Costs either charged directly or allocated indirectly

  • Telephone charges
  • Computer use
  • Project clerical personnel
  • Postage and printing
  • Miscellaneous office supplies

Costs usually allocated indirectly

  • Utilities
  • Rent
  • Audit and legal
  • Administrative staff
  • Equipment rental
  • Petrol
  • Maintenance
  • Generator
  • Security
  • Telephone


  1. ^ http://www.accountingtools.com/questions-and-answers/what-are-indirect-costs.html

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