A building firm has been awarded a contract to construct an office block. Which is a direct cost?
A.
Cost of materials
B.
Cost of legal fees
C.
Cost of insurance
D.
Cost of office space
The Answer Is:
A
This question includes an explanation.
Explanation:
Direct costs are attributable to a specific project — in construction, this includes materials and on-site labour. Legal fees, insurance, and office space are indirect costs, as they support the business overall but are not tied to one project. For buyers, distinguishing direct from indirect costs ensures pricing transparency and helps challenge excessive overhead allocations. This knowledge strengthens cost breakdown negotiations in project contracts.
[Reference: CIPS L4M5 (2nd ed.), LO 2.2 – Direct vs indirect costs in supplier pricing., , , ]
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