Accounting Dictionary

Indirect Cost

Also known as indirect materials, indirect costs are product costs that are hard to trace to a single product.

For example, I make wood ornaments that have to be varnished. It might be nearly impossible to say exactly how many drops of varnish are used for each ornament. I know varnish is a cost. I have to pay for it. But it is very difficult to say how many pennies worth of varnish goes on each finished piece.

Indirect materials are part of factory overhead which is part of conversion costs.

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