Indirect cost is those costs that cannot be directly assigned to/related to/identified with a particular cost center or cost object, but they benefit multiple cost objects. It is not possible to calculate them for a single cost object. However, it needs to be apportioned over various products as well as among the different departments of the organization. It includes production, office & administration, selling & distribution costs. The indirect cost is divided into the following categories:
- Indirect Material: Material Cost which cannot be identified with a particular product or project.
- Indirect Labor: Salary to the employees that cannot be allocable to a particular cost object.
Example: Salary to the management team and employees of the accounts department.
- Indirect Expenses: All the expenses other than indirect material and labor are included in this category.
Example: Interest, Rent, Tax, Duty, etc.