What are indirect costs?

Indirect costs are costs that cannot be attributed economically to specific objectives or projects, making them essential for understanding overall financial management in governmental or organizational settings. These costs often support multiple projects or objectives, such as administrative expenses, utilities, and general operational costs. Because they benefit various activities rather than being linked to a single project, they are necessary for ensuring that organizations can operate efficiently while distributing expenses across various initiatives.

In contrast, the other options specify costs that can be tied directly to particular projects. For instance, direct costs, as opposed to indirect costs, are those that can be directly linked to specific activities, which is not applicable to the nature of indirect costs. Therefore, recognizing indirect costs is critical for complete budgeting and financial analysis, as they help capture the full scope of expenses that contribute to an organization’s functioning but are not easily attributable to individual projects or outputs.