2017-05-11 11:23:23Self EmployedEnglishAs time goes on you may need to abandon your freelancing goals in favor of forming a company with employees who have regular roles and...https://quickbooks.intuit.com/ca/resources/ca_qrc/uploads/2017/05/freelancer-reviews-her-finances.jpghttps://quickbooks.intuit.com/ca/resources/self-employed/5-signs-you-have-outgrown-freelancing/Have You Outgrown Freelancing? What to Do Next

Have You Outgrown Freelancing? What to Do Next

1 min read

An indirect cost is an expense related to more than one product, project, or department. They’re the expenses that go toward the overall operation of your business with benefits to multiple departments or products. Since multiple areas of the business use and benefit from the costs, you can’t assign them to one specific item the way you can with direct costs, such as raw materials you use to make a product.

Examples of Indirect Costs

An example of an indirect cost is the rent you pay for your office building. It’s a necessary expense, but it’s not tied to any single product, since the building houses all of your business operations. But you still need to account for rent in the price of your goods because the rent expense is a cost of doing business. Tools like hammers and screwdrivers are indirect costs in the construction industry because you may use them in several projects. If you work in the retail industry and your employees oversee several different products, your labour expenses can be an indirect cost as well. Other examples include office expenses, utilities, phones, internet, accounting expenses, legal fees, and salaries for administrative personnel.

Allocating Indirect Costs

You can allocate indirect costs to the different areas or products they relate to or support. By allocating indirect costs, you assign a small part of the overall cost to several different projects, products, etc. To figure out how much should go where, you must first select cost drivers. Cost drivers are measurements that tell you how to allocate expenses. Square footage could be a cost driver for the indirect cost of rent. If you use 60% of your office’s square footage to make a specific product, you can include 60% of the indirect cost of rent into the pricing of that specific product. By assigning indirect costs, you can obtain better information to help you make decisions. Consider monitoring your indirect costs and evaluating how to allocate them to best assess the costs of producing each good or providing each service.

Tracking all of your costs helps you stay on top of your business finances. With QuickBooks Online, you can organize your business finances and stay ready for tax time. Try it free for 30 days.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

Related Articles

Small Business Deductions: Scientific Research and Experimental Development (SR&ED) Tax Credit

Freelancing gives you the freedom to grow your own business and decide…

Read more

When to Move From Freelancing to Consulting

Flexibility is a major benefit of freelancing. You have the flexibility to…

Read more

What Is the Difference Between Net 30 and 2/10 Net 30?

Self-employment is an increasingly popular way to achieve your dream lifestyle without…

Read more