There are two major types of costs (expenses) to consider: indirect costs and direct costs. Indirect costs are sometimes called “administrative” or “overhead” costs. Direct costs are those that fund resources which directly produce services to clients.
It is important to track the expenses required to operate each program and the amount of revenue needed to support the program. Indirect costs are a portion of administrative costs that are allocated to each program to provide the true total costs of the program. Creating an equitable indirect cost allocation basis is essential when distributing costs. For example, an accepted allocation basis is Direct Costs. This basis will allocate indirect costs to all benefitting programs based on the percentage of the program’s expenses compared to other program’s expenses.