A contractor's equipment ownership costs include depreciation, insurance, taxes, and storage. These costs are classified as:
Correct Answer
D) Fixed costs that occur regardless of usage
Ownership costs (depreciation, insurance, taxes, storage) are fixed costs that occur regardless of whether the equipment is used, as opposed to operating costs (fuel, maintenance, repairs) which vary with usage.
Why This Is the Correct Answer
Equipment ownership costs like depreciation, insurance, taxes, and storage are fixed costs because they occur continuously regardless of whether the equipment is actually used on projects. A contractor must pay insurance premiums, property taxes, and storage fees whether the equipment sits idle or operates daily. Depreciation occurs based on time and asset life, not usage hours. These costs remain constant and predictable, making them fixed rather than variable.
Why the Other Options Are Wrong
Option A: Variable costs that change with usage
Variable costs change based on equipment usage levels. Ownership costs like insurance, taxes, and storage remain the same whether equipment is used heavily or not at all. Operating costs like fuel, maintenance, and repairs are the true variable costs that fluctuate with usage.
Option B: Indirect costs allocated based on project size
While ownership costs may be allocated to projects for accounting purposes, they are not classified as indirect costs by nature. The classification refers to their cost behavior (fixed vs. variable), not their allocation method. These costs have a direct relationship to equipment ownership regardless of project involvement.
Option C: Direct costs charged to specific projects
Direct costs are typically charged to specific projects based on actual usage or consumption. Ownership costs occur regardless of project activity and are not directly tied to specific project work. They represent the cost of simply owning the equipment, not using it on particular jobs.
Memory Technique
Remember 'DITS' - Depreciation, Insurance, Taxes, Storage are always there whether you use equipment or not, like paying rent on an apartment even when you're on vacation.
More NASCLA Questions
Which AIA document contains the general conditions that govern the rights and responsibilities of all parties in a construction contract?
A construction company has direct labor costs of $85,000, direct materials of $120,000, and overhead costs of $45,000 for a project. What is the total job cost?
What is the primary purpose of job cost accounting in construction?
A construction company has current assets of $350,000 and current liabilities of $280,000. What is the company's working capital?
In CSI MasterFormat, which division covers earthwork and site preparation?
In a mechanical drawing, what does 'CFM' typically measure?
In CSI MasterFormat Division 08, which of the following would typically be included?
On a mechanical plan, what does the symbol 'RTU' typically indicate?
What is the minimum preheat temperature for welding ASTM A992 steel when the ambient temperature is 15°F?
A general contractor's balance sheet shows total assets of $850,000, current liabilities of $320,000, and long-term debt of $180,000. What is the company's equity?
People Also Study
Business & Financial Management
120 questions · 70% to pass
Contract Administration
60 questions · 70% to pass
Project Management
60 questions · 70% to pass