What are indirect (overhead) costs?

Indirect (overhead) costs refer to expenses that cannot be directly attributed to a specific program or service. These include costs that support overall operations but are not directly tied to the production of a specific output, such as utility costs, administrative salaries, and facility maintenance.

By definition, indirect costs are those that are incurred to support multiple programs or activities within an organization, making them essential for overall functioning rather than being linked to particular projects. Understanding this classification is crucial for budgeting and financial planning since it allows for a more accurate allocation of resources and better comprehension of total operational costs.

The other options misrepresent the nature of indirect costs. While specific program costs are accurately accounted for in program budgets, indirect costs provide a broader view of overall agency expenses. Similarly, costs allocated only to specific departments or defined as variable do not fit the definition of indirect costs, which span across multiple functions and do not vary strictly with program activity levels. Thus, recognizing indirect costs as those not specifically assigned to a single service or program is key for effective financial management.