What is an indirect cost?

An indirect cost is a cost that is not directly traceable to a cost object. Rather, the cost is common to several objects and requires an allocation.

For example, the depreciation of the factory building is an indirect cost of manufacturing products. The reason is that the annual cost of the factory building is not directly traceable to a specific unit of product manufactured during the year. The depreciation will be included in manufacturing overhead which is allocated to the units of  product manufactured during the year.

Learn more about Manufacturing Overhead.

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