What are Direct and Indirect Costs?

Direct Costs

Direct costs can be identified specifically with a particular final cost objective, such as a federal award, or other internally or externally funded activity, or that can be directly assigned to such activities relatively easily with a high degree of accuracy.

Typical direct costs include:

• Direct labor costs (i.e., the compensation of employees who work specifically on completing the objectives of a federal award);
• Direct labor employees’ related fringe benefit costs;
• Travel of direct labor employees; and
• Materials, supplies, or other items purchased for use on a specific federal award.

Indirect costs

Indirect costs are incurred for a common or joint purpose benefitting more than one cost objective, and not readily assignable to the cost objectives specifically benefitted, without effort disproportionate to the results achieved. Indirect costs are allowable under AFG as described in 2 C.F.R. Part 200, including 2 C.F.R. § 200.414.

Typical indirect costs include:

• Depreciation on buildings and equipment;
• The cost of operating and maintaining facilities; and
• General administration and general expenses, such as the salaries and expenses of executive officers, personnel administration, and accounting.