Copyright

What Are Indirect Costs? - Definition & Examples

What Are Indirect Costs? - Definition & Examples
Coming up next: Fixed Costs: Definition, Formula & Examples

You're on a roll. Keep up the good work!

Take Quiz Watch Next Lesson
 Replay
Your next lesson will play in 10 seconds
  • 0:02 Indirect Costs
  • 1:32 Vary by Company
  • 2:24 Lesson Summary
Save Save Save

Want to watch this again later?

Log in or sign up to add this lesson to a Custom Course.

Log in or Sign up

Timeline
Autoplay
Autoplay
Speed

Recommended Lessons and Courses for You

Lesson Transcript
Instructor: Tara Schofield
This lesson explains what indirect costs are and how they affect a business. Examples of indirect costs and how they can vary in different businesses are given.

Indirect Costs

Indirect costs are expenses a company may incur that are not associated to a specific product or project within a company. These costs may also be called administrative expenses or overhead costs.

Imagine that you are a manager for a small business that provides bottled water to local companies. As you review the monthly invoices, you find many invoices for expenses that have nothing directly to do with water bottling or distribution. However, these are expenses that are important to the operation of your business.

For instance, you notice your office supplies are quite high, especially printer paper. As you inquire, you find that the computer software your company uses for accounting uses standard printer paper when generating customer invoices. These invoices are sent to all customers to bill them for water deliveries. While the printer paper isn't directly tied to bottling or distributing water, it is critical to be able to bill companies for their service. The printer paper is an indirect cost to your company.

As manager, you can try to cut some of these indirect costs or reduce their impact. In a small business, indirect costs can be more easily identified and managed. However, in a larger businesses, it can be very difficult to understand which costs are necessary, if they are legitimate to the operations of the company and how they contribute to the success of the business. As a result, overhead or indirect costs can become excessive and may be unnecessary. Managing the indirect costs is an important part a manager's job.

Vary by Company

Indirect costs may be found in innumerable places within a business' accounting records. However, what may be a direct cost to one company could be considered an indirect cost to a different company.

To unlock this lesson you must be a Study.com Member.
Create your account

Register to view this lesson

Are you a student or a teacher?

Unlock Your Education

See for yourself why 30 million people use Study.com

Become a Study.com member and start learning now.
Become a Member  Back
What teachers are saying about Study.com
Try it risk-free for 30 days

Earning College Credit

Did you know… We have over 200 college courses that prepare you to earn credit by exam that is accepted by over 1,500 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.

To learn more, visit our Earning Credit Page

Transferring credit to the school of your choice

Not sure what college you want to attend yet? Study.com has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.

Create an account to start this course today
Try it risk-free for 30 days!
Create an account
Support