Indirect costs include costs which are frequently referred to as overhead expenses (for example, rent and utilities) and general and administrative expenses (for example, officers’ salaries, accounting department costs and personnel department costs). To ensure that indirect costs are accurately assigned to cost objects, managers need to use cause-and-effect allocations rather than the arbitrary allocations sometimes used in traditional costing systems.
You can allocate indirect costs by taking your total indirect expenses and dividing them by some sort of allocation measure, like direct labor expenses, direct machine costs, or direct material costs.Ī cost allocation in which the allocation base is a significant determinant of the cost. What is allocation of indirect costs?Ĭost allocation is the process of distributing your indirect costs among specific departments or projects.
Indirect costs also impact the budget for programs. High administrative fees may be unacceptable to some donors. It impacts how donors view your organization, for example, by changing the way in which expenses are laid out in your financials. Indirect cost allocation impacts many areas of your organization. What are some problems associated with assigning indirect costs to departments? 5 What makes up an indirect cost allocation base?.3 Are indirect costs difficult to assign?.2 What is allocation of indirect costs?.1 What are some problems associated with assigning indirect costs to departments?.
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