Direct costs

Direct costs are costs which are directly accountable to a cost object (such as a particular project, facility, function or product). Some overhead costs which can be directly attributed to a project (e.g. a designated project manager) may also be classified as a direct cost.

See also: Indirect costs

Direct costs are directly attributable to the object. In construction, the costs of materials, labor, equipment, etc., and all directly involved efforts or expenses for the cost object are direct costs. In manufacturing or other non-construction industries, the portion of operating costs which is directly assignable to a specific product or process is a direct cost.[1] Direct costs are those for activities or services that benefit specific projects, for example salaries for project staff and materials required for a particular project. Because these activities are easily traced to projects, their costs are usually charged to projects on an item-by-item basis.

Direct costs typically include:

  • Direct materials used in manufacturing
  • Direct labour
  • Direct expenses, e.g. a royalty payment to a patent holder for a specific production process [2]

References
  1. Standard AACE International Recommended Practice No. 10S-90 COST ENGINEERING TERMINOLOGY TCM Framework: General Reference, Association for the Advancement of Cost Engineering International, 2010, Pg 35
  2. CIPS (2106), Procurement and supply workflow, published by Profex Publishing Ltd., p. 49
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