Costs in general can be classified as all those expenses that are the responsibility of the company, being a consequence of economic activities within it, budget for the production of goods and services, some that cannot be avoided due to development and more, which affects indirect costs or direct, which, although they are expenses, can be beneficial.
While companies seek to cut the budget as much as possible to make as much profit as possible, indirect costs are unavoidable. If you want to know more, keep reading this post, where we bring you a lot of valuable information, and some indirect cost examples that can be of great help to you.
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In this article you will find:
What are indirect costs?
The indirect cost is only one of the many that have an effect within the production process of the goods and services offered in the market. They are mainly characterized by not being assigned directly in the products, this means that it can only be be defined when the allocation criterion is consistent and can be calculated individually, helping to define a final price.
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It is important to bear in mind that the indirect costs within a company are many, but the criterion of imputation is different in each, these are counted according to the type of cost and the product to which it is added said value.
Indirect cost types
Indirect costs can be classified into three different types according to the relationship they have with the level of activity required:
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General indirect costs
They are all those that despite existing are not necessary for production to take place. They are generally divided into different subgroups:
- Administrative.
- Commercial.
- Financial
Indirect production costs
Although this type of cost is not directly involved in production, it can be attributed to it, as is the case with indirect labor.
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Mixed indirect costs
These are characterized and distinguished from the others by not being fixed or variable, and can be maintained in most cases completely separated from the rest in order to keep track of they.
Indirect cost examples
Once you understand the concept of indirect costs and how they are classified, it is easy to identify them. As these are all expenses that are not incurred directly by the company and that cannot be assigned to the products in the process of manufacture or modification we can determine the following examples to you:
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- Determining some materials included within the indirect costs are the tools, fuel, lubricants, glue and various supplies which may vary within the manufacture of the product.
- With regard to indirect labor, the salaries of said employees are counted in terms of transporters or logistics managers.
- Fixed manufacturing expenses remain constant and include depreciation expenses such as rents, utilities, taxes, machinery, and insurance.
- The costs of renting the warehouse and warehouse, as well as electricity, gas and water to maintain them.
- Indirect labor also requires expenses at the personnel level for maintenance, as well as supervisors. They also include social benefits for workers and sometimes diets.
- Other costs related and necessary for production are included, such as procurement or the general cost of manufacturing.
- There are more complex ones such as hiring supervisors, production managers and safety to ensure the effectiveness of the workforce.
- Taxes, bank interest, internet and telephone bills, machinery depreciation are other clear examples of indirect costs that influence the production process.
- All those that originate and make changes based on the volume of production are part of the indirect costs, whether they increase or decrease during the process.
- Some are determined on a departmental basis, that is, by different sections depending on the way the company is run. Depending on the type of department, substations, raw material warehouses, mechanical departments or boilers can be included.
We can conclude that the indirect costs of a company are all the expenses incurred in the same during an entire project and while exercise their economic activities, however, they have a very complicated assignment and therefore must be determined by experts and professionals.
There are many occasions where companies focus only on expenses that involve direct costs, this occurs even when people decide to undertake in a new business, but it is necessary to take them into account since they are even more frequent and are closely related to the level of activity that is have.
