Define the term indirect costs.

Mark scheme

Marking points from the official mark scheme (Feb/Mar 2025). The mark or mark type is shown in brackets.

1. [2] Costs that cannot be identified with a unit of production or allocated accurately to a cost centre / business expenses not related to making of products or delivering services / business expenses necessary for overall operation of a business/ overhead expenses such as rent, utilities, depreciation, salaries
2. [1] An overhead cost
3. [1] (Identification) prevents over-spending / assists in the control and appropriate allocation of resources / motivates employees / used to measure, monitor and review business/departmental/individual performance / helps to achieve objectives / improves quality of decisions / identifies problems before they occur / assists in planning for the future / easy to compare present with previous performance
4. [2] (Developed Application) each manager knows what they have available to use/spend within their department / employees are given responsibility to keep within a budget / can be used as part of an appraisal process for objectives and targets set / progress against budget can measure effectiveness of individual employees or departments / allows business to review/revise how it has performed in controlling/meeting its budgets / extra resources can be directed where they are most needed to improve business performance/efficiency / builds in financial accountability / future need to raise finance anticipated – future cash flow difficulties