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Direct and Indirect Costs

Every expense incurred by your organisation will either be:

  1. A direct cost - a cost that is directly attributable to a service, event, program or other activity carried out by the organisation
  2. An overhead (indirect cost) - a cost that cannot be directly attributed to a service, event, program or other activity.

Direct Costs

During the budgeting process you will have to look closely at every event, program and service that you intend to provide and work out every direct cost

Examples of direct costs include:

Overheads - Indirect Costs

There will be many costs incurred by an organisation that cannot be directly attributed to specific events, programs and services. It may well be the case that the organisation's overheads are proportionately greater than direct costs. Therefore it is extremely important to ensure that the budgeting process takes account of all overheads.

Examples of overheads include:

Providing a reasonably good forecast of the total cost of overheads will depend on:

In real life the budgeting process is so complex that it must be divided up into smaller more manageable portions and allocated to many individuals who might have specific knowledge of the organisation's programs.


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