Estimating Practice Exam

Which of the following is included in general expenses?

1. Direct labor costs

2. Material costs like lumber and concrete

3. Indirect costs necessary for project facilitation

4. Contingency funds for unforeseen expenses

The correct answer is: Indirect costs necessary for project facilitation

General expenses refer to the overall costs that are not directly linked to specific project activities but are necessary for the administration and support of the project. These include indirect costs that facilitate the overall project operation, such as salaries for staff not directly involved in production, utilities, and office supplies. The inclusion of indirect costs necessary for project facilitation in general expenses captures the essence of administrative overhead required to keep the project running smoothly. Unlike direct labor costs or material costs, which can be traced directly to a project, general expenses cover broader, supportive activities that help ensure success without being tied to any specific output or task. Contingency funds, while important for managing unforeseen expenses, are set aside for unpredictable costs that arise during the lifecycle of a project, and they don’t fit within the framework of general expenses, which are expected and planned for as part of the project’s operational budget.