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An indirect cost rate represents the ratio between the total indirect costs and benefiting direct costs, after excluding and or reclassifying unallowable costs, and extraordinary or distorting expenditures.ooking at it another way, indirect costs are those costs that are not classified as direct. Direct costs can be identified specifically with particular cost objectives such as a grant, contract, project, function or activity. Direct costs generally include:
Indirect Cost: Definition and Example. To facilitate preparation of an indirect cost proposal, shown below are (1) some definitions of the term indirect costs, (2) a brief discussion of indirect cost rate structures and (3) a simple example of an indirect cost rate computation. Indirect Costs (definition extracted from FAR Part 31.2) An indirect cost is any cost not directly identified with a single, final cost objective, but identified with two or more final cost objectives or an intermediate cost objective. It is not subject to treatment as a direct cost.