Indirect Cost
What is indirect cost?
Indirect costs are costs not directly attributable to the production of a particular good or service. Overhead costs such as electricity or administrative expenses are indirect costs. Raw materials, for instance, are traceable to the production of a particular good and are thus a direct cost. Indirect costs are often called “overhead.”
What are the traditional types of cost?
The three classic distinctions between types of cost are:
- Raw materials
- Labor
- Indirect costs
Are indirect costs the same as fixed costs?
Fixed costs are costs that do not change with changes in production. A classic example of fixed cost is rent, which is a cost that must be paid whether a firm produces zero units or 1,000,000 in a given period. Though some indirect costs, such as rent, are indeed fixed costs, the two are not synonymous. Many indirect costs, such as advertising, are not fixed costs and some fixed costs are not indirect costs.