How to Calculate Indirect Costs

by Charlotte Johnson; Updated September 26, 2017
Indirect costs affect profits and discretionary funds.

Indirect costs are costs that are not grouped under major recognizable categories such as salaries, electricity or insurance. It is extremely important that you track indirect costs, as they can accumulate and hurt the financial status of your company. Once you know approximately how much indirect costs to anticipate, you can budget accordingly.

Step 1

Group all of your known expenses into appropriate categories.

Step 2

Create a place to keep track of any expenses that arise and don't fall into any of your predetermined categories.

Step 3

Write detailed records for unexpected or ungrouped expenses. These can cover a wide variety of subjects, from extra hours worked to long distance phone calls to expenses shared by several departments. Make notes about when the expenses occurred and exactly what they were for.

Step 4

Examine how much the total of your unexpected expenses were for a particular period of time and determine if these expenses were valid and necessary for the business.

Step 5

Trim unnecessary expenses and make an allotment for necessary expenses that don't fall into other categories. This will be the "Indirect Costs" portion of your budget.

About the Author

Charlotte Johnson is a musician, teacher and writer with a master's degree in education. She has contributed to a variety of websites, specializing in health, education, the arts, home and garden, animals and parenting.

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