INDIRECT COST Meaning and
Definition
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Indirect cost is a term commonly used in the field of finance and accounting to describe expenses that are not directly associated with the production of a specific product, service, or project. Instead, indirect costs are incurred to support the overall operations and functioning of an organization.
These costs are often necessary for the business to operate efficiently but cannot be easily traced back to a single product or service. Indirect costs include expenses such as rent, utilities, insurance, taxes, administration, marketing, and maintenance, among others.
Indirect costs can be further categorized into two types: fixed indirect costs and variable indirect costs. Fixed indirect costs remain consistent regardless of the level of production or sales, such as rent or insurance premiums. Variable indirect costs, on the other hand, fluctuate with the level of production or sales, for example, the cost of utilities.
Organizations allocate indirect costs to various products, services, or projects by using activity-based costing or other cost allocation methods. This helps in determining the true cost and profitability of individual items or activities within the organization.
Understanding and managing indirect costs is crucial for financial planning and decision-making, as they can significantly impact the overall profitability and success of a business. By identifying and monitoring indirect costs, organizations can make informed decisions regarding resource allocation and pricing strategies.
Common Misspellings for INDIRECT COST
- undirect cost
- jndirect cost
- kndirect cost
- ondirect cost
- 9ndirect cost
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- ibdirect cost
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- ihdirect cost
- insirect cost
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- incirect cost
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- inrirect cost
- ineirect cost
- indurect cost
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- indkrect cost
- indorect cost
Etymology of INDIRECT COST
The word "indirect" comes from the Latin word "indirectus", which is derived from the prefix "in-" (meaning "not") and the word "directus" (meaning "straight" or "direct"). It entered the English language in the late 15th century.
The word "cost" has its roots in the Old French word "coste", which originally meant "rib" or "side". It later evolved to also represent "expense" or "price". Borrowed into English in the 13th century, it has since retained its meaning in the financial context.
Therefore, the term "indirect cost" combines the notion of something being not direct or straightforward, with the financial concept of expenses or prices.
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