What are indirect overhead costs?

Indirect overhead costs are expenses that cannot be directly traced or allocated to a specific project, department, or product. Instead, they are necessary for the overall operational capacity of a business and support various activities without being tied to a single project’s output. Examples of indirect overhead costs include utilities, administrative salaries, and office supplies. These costs are essential for maintaining the business environment but do not directly contribute to the production of goods or services.

The other options do not accurately capture the essence of indirect overhead costs. Costs related to hard labor focus on direct labor costs, which are specific to production activities and can be directly assigned to a project. Similarly, costs related strictly to equipment would typically fall under direct costs associated with that equipment or project rather than being considered indirect overhead costs. Understanding the distinction between direct and indirect costs is crucial for effective budgeting and financial analysis in any business or project.