Which of the following are indirect expenses?

Which of the following are indirect expenses?

• A. Royalty costs
• B. Rent, rates, gas, water, electricity, depreciation and insurance
• C. Wages
• D. Sub-contracted charges

Answer: (B)

Indirect expenses are costs that cannot be traced to a single product and are treated as overheads that support the whole operation. Rent, rates, utilities (gas, water, electricity), depreciation and insurance fit this idea because they’re incurred to run the entire business or factory and aren’t tied to producing one specific item. Wages can be direct when they relate to workers who manufacture a particular product, and sub-contracted charges or royalties can be direct if they’re tied to a specific product or service; they’re not automatically overheads. Because the listed group contains classic overhead items that are commonly allocated to products as indirect costs, it is the best match.

Indirect expenses are costs that cannot be traced to a single product and are treated as overheads that support the whole operation. Rent, rates, utilities (gas, water, electricity), depreciation and insurance fit this idea because they’re incurred to run the entire business or factory and aren’t tied to producing one specific item. Wages can be direct when they relate to workers who manufacture a particular product, and sub-contracted charges or royalties can be direct if they’re tied to a specific product or service; they’re not automatically overheads. Because the listed group contains classic overhead items that are commonly allocated to products as indirect costs, it is the best match.