A construction project has the following costs: Direct materials $180,000, Direct labor $120,000, Equipment rental $45,000, Project management $25,000, General office overhead $15,000. What are the total direct costs for this project?
Correct Answer
C) $370,000
Direct costs include materials, labor, equipment rental, and project management that can be directly attributed to the project: $180,000 + $120,000 + $45,000 + $25,000 = $370,000. General office overhead is an indirect cost.
Why This Is the Correct Answer
Direct costs are expenses that can be directly traced and attributed to a specific construction project. These include direct materials ($180,000), direct labor ($120,000), equipment rental ($45,000), and project management ($25,000) since these costs are incurred specifically for this project. General office overhead ($15,000) is excluded because it's an indirect cost that supports multiple projects and cannot be directly attributed to one specific project. The total direct costs are $370,000.
Why the Other Options Are Wrong
Option A: $385,000
This answer incorrectly includes general office overhead ($15,000) as a direct cost, when overhead expenses that support multiple projects are classified as indirect costs.
Option B: $400,000
This answer excludes project management costs ($25,000), incorrectly treating them as indirect costs when they are actually direct costs attributable to the specific project.
Memory Technique
Use 'DLEM' - Direct costs are Directly traceable, Labor specific, Equipment project-specific, and Materials for the job. Office overhead fails the 'directly traceable' test.
Reference Hint
Florida Building Construction Standards - Chapter on Cost Accounting and Project Cost Classification
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