ECONOMICS

Detailed explanation-1: -An indirect cost rate is the ratio between the total indirect expenses and some direct cost base. The indirect cost allocation methods used by each organization depend on its own structure, program functions, and accounting system.

Detailed explanation-2: -To calculate the indirect rate you divide your direct costs by the indirect costs. Costs specifically associated with performing on a particular project – including labor and materials required to do that job.

Detailed explanation-3: -Indirect costs include costs which are frequently referred to as overhead expenses (for example, rent and utilities) and general and administrative expenses (for example, officers’ salaries, accounting department costs and personnel department costs).

Detailed explanation-4: -Calculate Overhead Allocation Rate To allocate the overhead costs, you first need to calculate the overhead allocation rate. This is done by dividing total overhead by the number of direct labor hours.