List of Indirect Expenses

What are Indirect Expenses?

Indirect costs are the expenses that an organization incurs in delivering its day-to-day business operations. Examples include salaries, insurance, rent, rates and taxes, legal charges, advertisement, commission, packing and store supplies expenses, traveling expenses, audit fees, interest on the loan, bank charges, amortization, equipment depreciation, equipment maintenance, utilities, etc. These costs cannot be apportioned to the cost and selling price of a product.

Explanation

Expenses borne by the company can be of two types- direct expenses and indirect expenses. Direct expenses are the costs directly related to the manufacture of goods, such as the cost of raw materials and direct labor expenses. In contrast, indirect expenses are the indirect costs. A company incurs these costs in delegating its daily business operations. Indirect expenses can be of two types- fixed indirect costs and recurring indirect expenses.

List of Indirect Expenses

Given below is the list of indirect expenses classified based on various expenses.

1. Business and Administration Expenses
2. Sales and Marketing Expenses
3. Economic and Other Expenses

#1 - Under Business and Administration Expenses

Indirect expenses like salaries, insurance, legal charges, rent, rates, and taxes all fall under business and administration expenses. These expenses are concerned with the administration of the business of an organization. These expenses are discussed in detail below:

• Salaries: Salaries are the payment by an employer to their employees against their services. The salaries offered to employees shall differ from employee to employee, designation to designation, and organization to organization. The salaries are usually cleared during the month-end unless stated in the agreement.
• Insurance: IInsurance can be better defined as an arrangement under which an organization avails financial protection from an insurer (insurance company) for their manufactured goods against unforeseen losses caused by damage or theft. It is backed up by a contract that states the right of an entity to receive financial protection against unforeseen losses from an insurer or an insurance company.
• Rent, Rates, and Taxes: Rent is an amount that an entity is required to pay to the landlord for using his or her property for conducting his day to day business operations. The amount of rent to be paid to the landlord and the contract tenure are mentioned in the contract. Rates and taxes can be defined as the number of fees paid to the municipality for servicing the property used by an entity, and the number of fees charged depends on the type of property used by an entity.
• Legal Charges: Legal charges can be defined as the right of a lending company (lender) to take over the property or other assets of the borrower for failing to pay the borrowed money of the former.

#2 - Under Sales and Marketing Expenses

Indirect expenses like advertisement and marketing, commission, packing and store supplies, and travel all fall under sales and marketing. These expenses are concerned with the selling and marketing of the goods manufactured and sold by an organization. These expenses are discussed in detail below:

• Advertisement: An organization incurs advertisement and marketing expenses to enhance its product visibility in the market and design and implement strategies. It is done to convince the maximum audience to purchase their products over similar products that its competitors offer.
• Commission: A commission can be of two types. It can be an expense incurred by an entity for availing the services of a middleman, and it can also be a sort of expense incurred by an entity for paying a particular percentage of profits to the salesman for selling off their products. In the latter case, the higher the sales, the higher shall be the commission earned.
• Packing and Store Supplies Expenses: These expenses are incurred while packing products and supplying the same to the sale stores. These costs are generally charged whenever they incur.
• Traveling Expenses: Traveling expenses can be defined as the costs that are generally incurred while conducting activities related to the business. These expenses include the expenses borne by the employees for commuting to the office from home and home from the office. These expenses can be either of the two types- reimbursable and non-reimbursable. Reimbursable traveling expenses incurred by the employees can be reimbursed, whereas non-reimbursable traveling expenses incurred by the employees cannot be reimbursed.

#3 - Under Economic and Other Expenses

Indirect expenses like audit fees, interest on the loan, bank charges, and amortization expenses all fall under the economic and other expenses category. These expenses are concerned with the economic expenses of an organization's manufactured and sold goods. These expenses are discussed in detail below:

• Audit Fees: Audit fees can be defined as a fee paid by an entity to the external auditors against the audit services performed by the latter.
• Interest on Loan: Interest on a loan can be defined as an interest amount paid on debts borrowed by an entity. Interest is more or less a type of payment that a borrower pays to a lending company (lender) against the amount originally borrowed by the former. Interest on the loan is usually calculated as a particular percentage of a principal sum, i.e., the borrowed.
• Bank Charges:  Bank charges can be fees, penalties, or charges levied by a banking institution upon their customers against banking services or failure to make timely EMIs or credit card payments.
• Amortization: Amortization can be defined as the spread of payments over more than one period. Amortization can be used for processes like amortization of assets and amortization of loans.

Conclusion

Indirect expenses are of various types and can be divided into three categories: business and administration expenses, Sales and marketing expenses, and economic and other expenses.  Expenses such as salaries, insurance, rent, rates and taxes, and legal charges are business and administration expenses. Expenses such as commission, packing, store supplies, advertisement and marketing, and traveling expenses are termed sales and marketing expenses. Expenses such as interest on loans, audit fees, amortization expenses, and bank charges are termed economic and other expenses.

Recommended Articles

This article has been a guide to the List of Indirect Expenses. Here we discuss indirect expenses under Business and Administration, Sales and Marketing, Economic and Other Expenses with a detailed explanation. You can learn more from the following articles –

• Meaning of Other Expenses
• Terminologies in Accounting
• What is Indirect Labor?
• Meaning of Indirect Costs