Last edited 19 Jun 2019

Indirect cost

Indirect costs are those costs that are necessary to keep a process or project running, but which do not vary directly with the volume of goods or services produced and are not easily attributable to a particular process or project. This might for example include; rent, insurance, advertising and marketing and so on. These types of indirect costs may be referred to as overheads.

This is as opposed to direct costs, which are those costs incurred directly by production and include items such as raw materials, labour, equipment, power and so on. Direct costs can be traced and are attributed to a cost ‘object’ which may be a product, department, cost centre or project.

So, indirect costs do not vary directly with production levels, whereas direct costs remain dependent on production levels and will vary when production is increased or decreased.

For more information see: Direct costs.

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Comments

I would like to know if prelim, overheads and profits are considered as "indirect costs"

They are typically considered to be indirect costs.

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