What are indirect costs?

Indirect costs are understood to be those that are not directly attributable to the production of a specific product or service. Within them, some authors distinguish between the so-called semi-direct, when despite not being able to be attributed to a specific product or service, they can be attributed to a specific cost center or department. And the indirect ones, which would then be those that cannot be attributed to a specific product or service, or to any specific cost center or department.

Furthermore, a distinction is usually made between indirect production costs, which are those costs not directly involved in production but necessary for it, such as indirect labor. And, the general indirect costs, which, in turn, are usually divided into several groups. such as indirect commercial costs, indirect administration costs, and indirect financial costs.

To allocate indirect costs to products or services, it is necessary to calculate them, which can be done in different ways, and a distribution. This is essential, since companies are not Non-profit organizations, and it is essential that the products or services sold by the company report a margin or profit, since otherwise it could not survive. Therefore, the indirect costs must be distributed, once we know the amount of indirect costs that correspond to each unit of product or service.

In this way, we can include them within the selling costs, and establish a price for our products or services that gives us a profit margin and allow the continuity of the company. The distribution of indirect costs can be made by affectation, as occurs with direct costs. Or by allocation, to certain cost centers, and, subsequently, to the product or service in question.

Examples of indirect costs

Among the different indirect costs of a company we find:

  • Rentals
  • Taxes
  • Internet and telephone expenses
  • Amortization
  • Fuels

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