Definition: The term burden rate refers to the allocation rate of indirect costs to direct costs. Usually, it covers two areas, including labor and inventory. Companies allocate indirect costs to the direct costs for products or services through the burden rate. Companies incur indirect costs in many forms. However, these costs may not always be apparent. Companies sometimes also refer to them as hidden costs associated with running operations. Usually, they include unknown variable costs that can create issues in determining product costs. Companies must apply those indirect costs to their direct costs to understand their processes better. Direct costs, in contrast, are much easier to establish. Usually, companies calculate these costs as they incur them during production. Direct costs include any expenses directly occurring due to manufacturing products . For service firms, they consist of costs directly attributable to the process of rendering services. However, these costs do
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