Direct cost
![]() |
Direct costs for goods and services are those costs incurred directly for production and include items such as raw materials, labour, equipment, software and power costs. Direct costs can be traced and attributed to a cost ‘object’ which may be a product, department, cost centre or project.
Indirect costs (sometimes called ‘overheads’) are those necessary to keep a production facility in business and include rent, insurance, advertising and marketing which, although they may be included in the cost of the product or service, they are still indirect costs because they do not vary directly with the volume of goods/services produced and are not easily attributable to a particular process or project.
The amount added to a product’s unit costs by indirect costs will vary according to production levels, as in the following illustration:
The direct cost of manufacturing a steel padlock is £1, made up of:
The factory’s monthly indirect costs (rent, equipment, marketing etc) = £50,000
In January, the factory makes 100,000 padlocks, so the indirect cost element attributed to each unit is £0.50p.
In February, the factory makes 200,000 padlocks, so the indirect cost element attributed to each unit is £0.25p.
But in both months, the indirect costs have not changed, the only variable is in how much indirect cost is incurred by each unit.
So, indirect costs do not vary directly with production levels, whereas direct costs remain dependent on production levels and will vary when production is increased or decreased.
NB Cost prediction, Professional Statement, 1st edition, published in November 2020 by the Royal Institution of Chartered Surveyors (RICS), defines direct costs as: ‘Costs incurred on labour, material, plant and equipment, etc., i.e. costs that are directly accountable to the project.’
[edit] Related articles on Designing Buildings
Featured articles and news
From self-climbing robotic installations to metacores and PORT tech: A tour.
A dynamic brand built for impact stitched into BSRIA’s building fabric.
BS 9991:2024 and the recently published CLC advisory note
Fire safety in the design, management and use of residential buildings. Code of practice.
NBS launches industry guide for specification writing
Available for free and as immediate download.
Peter Barber’s work revives forgotten building types.
Insights of how to attract more young people to construction
Results from CIOB survey of 16-24 year olds and parents.
Focussing on the practical implementation of electrification.
Preston flood scheme completes primary school SuDS
Three primary schools benefit from SuDS schemes.
Sustainable Urban Drainage and Biodiversity
Awards for champions of these interconnected fields now open.
Microcosm of biodiversity in balconies and containers
Minor design adaptations for considerable biodiversity benefit.
CIOB student competitive construction challenge Ireland
Inspiring a new wave of Irish construction professionals.
Challenges of the net zero transition in Scotland
Skills shortage and ageing workforce hampering Scottish transition to net zero.
Private rental sector, living standards and fuel poverty
Report from the NRH in partnership with Impact on Urban Health.
.Cold chain condensing units market update
Tracking the evolution of commercial refrigeration unit markets.
Attending a conservation training course, personal account
The benefits of further learning for professsionals.
Restoring Alexander Pope's grotto
The only surviving part of his villa in Twickenham.
International Women's Day 8 March, 2025
Accelerating Action for For ALL Women and Girls: Rights. Equality. Empowerment.
Lack of construction careers advice threatens housing targets
CIOB warning on Government plans to accelerate housebuilding and development.
BSRIA market intelligence division key appointment
Lisa Wiltshire to lead rapidly growing Market Intelligence division.
Comments
[edit] To make a comment about this article, or to suggest changes, click 'Add a comment' above. Separate your comments from any existing comments by inserting a horizontal line.