 Hello! In this lecture, we will define indirect costs. According to fundamental accounting principles, while the 22nd edition, the definition of indirect costs are support accounting instruction by clicking the link below, giving you a free month membership to all of the content on our website broken out by category, further broken out by course. Each course then organized in a logical, reasonable fashion, making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files, and more like QuickBooks backup files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. Costs incurred for the benefit of more than one cost object. When we are considering indirect costs, we can compare indirect costs to direct costs and see the contrast between the two when considering something like a manufacturing company, a company that is manufacturing inventory. For example, we're going to say the inventory is a tablet here for trying to group the costs. One way we can group the costs in relation to the production of inventory could be direct costs versus indirect costs. This will be useful because we're going to have to apply the costs in some way to the specific units of inventory or the batches of inventory or to some type of process depending on what type of accounting system we are using. If we are manufacturing something, we typically are looking at a job cost system or a process cost system. If we're looking at these systems, we have to somehow apply the costs directly to the inventory that we're going to sell in the end of the day. The costs that we can apply out directly are going to be the direct costs, things like the direct materials and the direct labor. Those are things typically, if we use a job cost system, we can say, Hey, this is these people worked on this particular job. This inventory was used for this particular job, and therefore we can apply it out to that particular job in that particular piece of inventory process cost system. Again, we can apply it out to the process, the direct materials and the direct labor. However, any other costs that we cannot directly apply out, but which are still part of the end process, the end inventory, we're going to say our indirect costs, and those we're going to put into a group, and then we will apply them to the process or the inventory using some type of estimate. These are costs that should be part of, in this case, the inventory, but which we cannot apply to specific inventory. We know it's in inventory. We know what we incurred in terms of costs, but we can't apply it to the specific inventory. Therefore, we're going to have to use some type of estimate. Any cost that's basically in the factory is going to be something that will be most likely an indirect cost, meaning depreciation on the factory, rents on the factory. If there's equipment or something, depreciation on the equipment costs of maintenance on the equipment, if we have maintenance of the factory. These are all things that we want to include in the cost of the inventory, but we also want to break it out to the specific inventory, the specific batch, or the specific process. And in order to do that, we're going to have to use some type of allocation. Also, small types of material will be allocated in this way. So if we had something like glue in the phone or the tablet here, then we would have to put the glue most likely into indirect costs, because it would be too costly for us to track all the glue that was used. It's not worth our time and effort to track the glue. Therefore, we would put it into the indirect costs, apply it out in that format.