Estimating Practice Exam

Which item is typically NOT considered a direct cost of construction?

1. Labor expenses

2. Material purchases

3. Site utility fees

4. Project management salaries

The correct answer is: Project management salaries

In construction accounting, direct costs are those that can be directly attributed to a specific project, such as labor, materials, and other expenses incurred directly for the construction of a project. These costs are essential for calculating the total cost of the project and are factored into estimates and bids. Labor expenses and material purchases are primary examples of direct costs. Labor expenses include wages paid to workers directly involved in construction activities, while material purchases encompass the costs for physical items required, such as concrete, steel, and other building materials. Site utility fees can also be seen as a direct cost because they are necessary to facilitate construction operations on-site and are usually specific to the project being worked on. On the other hand, project management salaries typically fall into the category of indirect costs. These salaries are not directly tied to the production of a specific project but instead support multiple projects or the overall operations of the construction company. As such, they will be classified as overhead expenses rather than direct costs. This differentiation is crucial for accurate cost estimation and project budgeting.