Indirect costs are those which affect the whole company such as depreciation, accounting services, general supplies, board salaries. Such a scenario can be seen in the case of a rice farmer who produces more than enough rice to meet his needs and sells the extra rice to other people in exchange for money that serves as a medium for obtaining other necessary items. Let us consider a factory named XYZ Ltd that has the following information and from the below-furnished information, the total indirect cost of production has to be calculated. Let's look at an indirect materials example. An example of indirect production can be seen in the production of an item expressly for the purpose of producing other items. Indirect materials are materials used in a production process, but they are not directly traceable to a cost object. What is the definition of indirect manufacturing costs? Unlike direct labor cost, indirect labor costs are not so readily associated with specific units. Overhead costs, ongoing costs, project management costs, operational costs are … Indirect production is an economic term that refers to the process of producing something in an indirect manner. Activity-Based Costing Cost Accounting Fundamentals, Accounting BestsellersAccountants' GuidebookAccounting Controls Guidebook Accounting for Casinos & Gaming Accounting for InventoryAccounting for ManagersAccounting Information Systems Accounting Procedures Guidebook Agricultural Accounting Bookkeeping GuidebookBudgetingCFO GuidebookClosing the Books Construction AccountingCost Accounting FundamentalsCost Accounting TextbookCredit & Collection GuidebookFixed Asset AccountingFraud ExaminationGAAP GuidebookGovernmental Accounting Health Care Accounting Hospitality Accounting IFRS GuidebookLean Accounting Guidebook New Controller GuidebookNonprofit Accounting Oil & Gas Accounting Payables ManagementPayroll ManagementPublic Company Accounting Real Estate Accounting, Finance BestsellersBusiness Ratios GuidebookCorporate Cash ManagementCorporate FinanceCost ManagementEnterprise Risk ManagementFinancial AnalysisInterpretation of FinancialsInvestor Relations GuidebookMBA GuidebookMergers & AcquisitionsTreasurer's Guidebook, Operations BestsellersConstraint ManagementHuman Resources GuidebookInventory Management New Manager Guidebook Project ManagementPurchasing Guidebook. Direct Cost Indirect Cost; Can track to the final product: Can not track to the final product: Will Change due to production quantity: Fix or slightly change as the production change: Example: direct labor (salary of a worker, Over timer…), Direct material and manufacturing supplies. Indirect production is not only limited to machinery or equipment as it may also be applied to services as well. To facilitate preparation of an indirect cost proposal, shown below are (1) some definitions of the term "indirect costs," (2) a brief discussion of indirect cost rate structures and (3) a simple example of an indirect cost rate computation. Office electricity expense – $10,000 6. On the other hand, certain costs don’t easily trace to an individual product; these costs are called indirect costs. Explicit Cost 5. This may be achieved through the use of another item for the production of the final good, or it may be achieved through the production of something to be used as a means to obtaining another item. Audit expense – $5,000 10. In a manufacturing company, a cost object is anything for which a cost can be allocated. Indirect costs do not vary substantially within certain production volumes or other indicators of activities, and so are considered to be fixed costs. For instance, this would apply to a telephone that was specifically manufactured by a company for use by its customer service representatives. Examples of these costs are supplies, depreciation, utilities, production supervisory wages, and machine maintenance. They do not form part of a finished product. September 29, 2018 Indirect manufacturing costs are production costs that cannot be directly associated with a produced unit.