Indirect costs, also known as overhead costs or overhead expenses, are expenses that are not directly related to the production of a good or service. They are incurred by a company as a result of its operations, but cannot be easily traced to a specific product or service. Examples of indirect costs include administrative expenses, rent, utilities, and insurance. These costs are necessary for the operation of a business, but are not directly tied to the production of specific products or services. Indirect costs are typically allocated to different products or services based on an allocation method, such as the number of units produced or the direct labor hours required. For example, if a company incurs $100,000 in indirect costs and produces 1,000 units of a product, the indirect cost per unit would be $100 ($100,000 / 1,000 units).Indirect costs are important to consider because they can impact a company's profitability. By accurately allocating indirect costs to the products or services that they support, a company can better understand its cost structure and make more informed pricing decisions.
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