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
Professional practical experience for Architects in training
The long process to transform the nature of education and professional practical experience in the Architecture profession following recent reports.
A people-first approach to retrofit
Moving away from the destructive paradigm of fabric-first.
International Electrician Day, 10 June 2025
Celebrating the role of electrical engineers from André-Marie Amperè, today and for the future.
New guide for clients launched at Houses of Parliament
'There has never been a more important time for clients to step up and ...ask the right questions'
The impact of recycled slate tiles
Innovation across the decades.
EPC changes for existing buildings
Changes and their context as the new RdSAP methodology comes into use from 15 June.
Skills England publishes Sector skills needs assessments
Priority areas relating to the built environment highlighted and described in brief.
BSRIA HVAC Market Watch - May 2025 Edition
Heat Pump Market Outlook: Policy, Performance & Refrigerant Trends for 2025–2028.
Committing to EDI in construction with CIOB
Built Environment professional bodies deepen commitment to EDI with two new signatories: CIAT and CICES.
Government Grenfell progress report at a glance
Line by line recomendation overview, with links to more details.
An engaging and lively review of his professional life.
Sustainable heating for listed buildings
A problem that needs to be approached intelligently.
50th Golden anniversary ECA Edmundson apprentice award
Deadline for entries has been extended to Friday 27 June, so don't miss out!
CIAT at the London Festival of Architecture
Designing for Everyone: Breaking Barriers in Inclusive Architecture.
Mixed reactions to apprenticeship and skills reform 2025
A 'welcome shift' for some and a 'backwards step' for others.
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.