Indirect costs are costs that are difficult, or impossible, to assign to a specific cost center. Let's say, for example, that you will use grant funds to hire a project director. The project director's wages and fringe are a direct cost, because you know exactly the "cost center" to which the expense should be assigned—in this case, your grant project.
When the project director reports for work, your organization will provide a desk, a chair, lighting, a trash can, a toilet that flushes, pens, pencils, and such. How much does all this cost? It's difficult or impossible to say. These are indirect costs.
Accountants use a formula to arrive at a general indirect cost rate, a percentage. For grant proposal budget purposes, obtain your organization's indirect cost rate from the people who handle the finances.
To determine indirect costs, simply multiple total direct costs times the indirect cost rate. It is worth noting that some grant makers do not allow indirect costs on equipment costs. For those grant makers, the equipment costs must be subtracted from the total direct costs before computing indirect costs.
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