Courses : Intermediate Macroeconomics Lecturer : Frischa Adellia Semester : 4th Semester, 2022/2023 Sesion Indirect Costs Indirect costs, also known as overhead costs, are costs that are not directly attributable to a particular product or service. Indirect costs usually consist of general costs incurred by the company to support its overall business operations. Examples of indirect costs include costs such as office rent, electricity and water costs, office equipment costs, administrative costs, insurance costs, and salaries of non-production staff such as accounting and finance staff. Since indirect costs are not directly attributable to specific products or services, companies need to allocate these costs to products or services proportionately using the appropriate cost allocation method. One of the most commonly used cost allocation methods is the direct labor cost method, in which indirect costs are assigned to products or services based on the amount of labor used to produce or provide the service. In managing indirect costs, companies need to pay attention to the effect on the selling price of their products or services. An increase in indirect costs can lead to an increase in the selling price, which can affect the competitiveness of the product or service in the market. When managing indirect costs, companies must also consider the efficiency and effectiveness of their use. Companies should strive to reduce indirect costs as much as possible, without sacrificing product or service quality. In addition, companies can also manage indirect costs by conducting a cost and benefit analysis of each indirect cost. By analyzing the benefits generated from each indirect cost, companies can ensure that the costs incurred to support their business operations are proportional to the benefits generated. Companies can also use technology to manage indirect costs. Some special software can help companies monitor indirect costs, allocate costs to products or services accurately, and analyze the effectiveness of using indirect costs. Good indirect cost management can help companies optimize their use and increase their profitability. By understanding indirect costs and managing them well, companies can make better decisions in allocating resources and improve their operational efficiency. In some industries, indirect costs can be a significant cost component in the total cost of production. For example, in the manufacturing industry, indirect costs such as factory overhead costs may include production equipment costs, machine maintenance costs, storage costs, direct labor costs, and so on. In a service business, indirect costs may include overhead costs such as office rent, electricity, telephone and office equipment costs. In addition, non-production labor costs such as the salaries of employees working in the administrative and marketing departments are also considered as indirect costs. Indirect cost management is very important for companies because it can affect the net profit generated. If the indirect costs are too high, the company's net profit will decrease. Therefore, companies need to pay attention to managing indirect costs properly so that they remain within reasonable limits and do not affect their profitability. In order to manage indirect costs effectively, companies can use cost analysis methods such as the expense method, break-even analysis, and cost benefit analysis. Companies can also use information technology and software specialized in managing indirect costs such as inventory management and human resource management. Overall, indirect cost management is an important part of the company's financial management and business strategy. By properly managing indirect costs, companies can increase their profitability, make better decisions, and increase their operational efficiency. Examples of indirect costs that are common in companies are: 1. Office building rental fee 2. Electricity, water and gas costs for office and factory needs 3. Internet, telephone and communication costs 4. Cost of office equipment and production equipment, such as machinery, electrical equipment, and others 5. Non-production labor costs, such as the salaries of employees working in administration, accounting, and marketing departments 6. Insurance, tax and license costs 7. Machinery and equipment maintenance and repair costs 8. Employee training costs 9. Shipping and logistics costs 10. Promotion and marketing costs Companies can manage indirect costs by monitoring and controlling these costs, allocating costs to products or services accurately, and analyzing the effectiveness of using indirect costs to improve operational efficiency and profitability. The following are the characteristics of indirect costs: 1. Not directly attributable to a particular product or service. 2. Consists of costs required to carry out overall business operations, such as factory overhead costs or office overhead costs. 3. Indirect costs are not always constant and can fluctuate with changes in the level of production or services provided. 4. Indirect costs cannot be identified directly with certain activities within the company. 5. Indirect costs are invisible to customers and do not affect the selling price of products or services. 6. Indirect costs are usually budgeted or assigned for a specific period of time and then allocated to specific departments or products. In financial management, managing indirect costs is very important to ensure that companies remain efficient in the use of resources and maintain a healthy net profit. Therefore, companies must monitor and control indirect costs regularly to optimize business operations and increase profitability.