An indirect cost (or overhead) supports the business as a whole and can’t be traced cleanly to a single product or job. Rent, utilities, IT systems, taxes, HR staff, executive salaries, depreciation of shared equipment: all overhead. The business needs them to operate, but no single product is uniquely responsible for them.
The contrast is the direct cost, material and labour that can be assigned unambiguously to a specific output.
Indirect costs have to be allocated across products to compute per-unit cost, and the allocation method is a judgment call. Common rules: allocate overhead in proportion to direct labour-hours, machine-hours, square footage occupied, or revenue. Each rule gives a different per-product cost, and the choice can affect which products look profitable.
So when comparing engineering alternatives, reason in terms of incremental costs (Incremental cost) rather than fully-allocated costs. Allocations are made for accounting and pricing, not for marginal decisions. A decision that looks unprofitable under one allocation can be profitable under another, but the incremental cash flows are real either way.
In an Income statement, indirect costs sit in operating expenses, selling, general, and administrative (SG&A), below the gross-profit line.