What is Indirect Expenses? Indirect expenses are expenses that aren’t directly related to a direct cost object. Indirect expenses can be both fixed or variable. Indirect expenses consist of personnel, administration and other overhead costs. These are expenses that aren’t directly tied to production. Some indirect expenses might also be overhead costs.
There are many different indirect expenses that a company can have. They can be in the forms of general administration costs, fixed costs and variable costs. General administration costs are what all employees receive; these are what the company doesn’t have to pay. Fixed costs relate to such things as supplies and materials and labor. Variable costs can include travel, entertainment and meals and these are what a company pays each employee for. The combination of these four types of indirect expenses can make up a great deal of a company’s profit or loss.
As mentioned before these expenses aren’t directly tied to production, but they do affect production and the company as a whole. If a company has a lot of overhead expenses then they will obviously have less profit than a company that doesn’t. How is this affecting you? Well, as a business owner you need to keep all of your direct and indirect expenses under control.
So what is indirect expenses? These types of expenses are usually what is called a soft cost. These expenses are generally considered non-revenue producing; they don’t directly create a revenue stream from the company. Examples of soft costs would be things like what is used in the office supplies. Things like paper, pens, computers and even the coffee used in the office building.
A company can have indirect expenses in two different forms. The first form of what is indirect expenses is when a company has an item that they buy and then they get a deduction for it being a soft cost. The second form of indirect expenses is when a company buys something that has a significant value to them and then they get a deduction because it falls into the category of a direct expense. Many items fall into the category of a direct expense and indirect expense. Some examples of direct expenses are: gasoline, vehicle maintenance and repairs, office supplies, computer software, cellular phones and Internet service.
There are many ways that a company can take advantage of what is known as indirect expenses. One way is through what is called a revenue share sale. This is where a company sells their shares of a corporation’s stock at a discount and then gets a percentage of the profits from those stocks. This is good if the company is profitable enough and they want to keep some of the money they make.
Another way to take advantage of what is called indirect expenses is by purchasing goods that your company must have to be profitable and then buying them at retail prices instead of wholesale prices. Many wholesalers are willing to sell you these products at a discount. The company can then add what is called an operating overhead expense on to their gross profit figure which means that they will actually make more profits per product sold than what is their gross profit amount. If they were selling wholesale products they would not be able to do this and they would be required to pay more taxes.
The indirect method of business finance is something that can help a company to save money. The way that it works is that the company will purchase goods for their own use rather than using them for their own profit. They will then deduct what is called an operating overhead expense from their profit and write it off against their income statement. Because these expenses are allowable, they will reduce the company’s taxable income and make them more profitable. Using what is known as an operating overhead is a great way for a company to control their expenses and turn a profit.