WESTERN MINDANAO STATE UNIVERSITY
ENVIRONMENTAL ENGINEERING DEPARTMENT
COLLEGE OF ENGINEERING AND TECHNOLOGY
ZAMBOANGA CITY, PHILIPPINES
Direction: Define the following terms below.
1. Direct Cost Elements
In the field of cost estimating, the direct costs can be defined, in a simplistic
way, as all the costs associated with a construction activity. If we perform the
activity, we incur the costs and vice-versa. Only the resources allocated to
construction activities are considered direct costs.
A direct cost is a price that can be directly tied to the production of specific
goods or services.
A direct cost can be traced to the cost object, which can be a service, product,
or department. Because direct costs can be specifically traced to a product,
direct costs do not need to be allocated to a product, department, or other cost
objects. Direct costs usually benefit only one cost object.
a. Material Cost Derivation - The direct material cost is one of the few
variable costs involved in the production process; as such, it is used in
the derivation of throughput from production processes.
b. Labor Cost Derivation
Labor costs are those costs associated with employing labor including direct
wages, food contributions, transport, and social costs, including payments for
health and retirement. The cost of supervision may also be spread over the labor
costs. The machine rate is the sum of the fixed plus operating plus labor
costs. The division of costs in these classifications is arbitrary although
accounting rules suggest a rigid classification. The key point is to separate
the costs in such a way as to make the most sense in explaining the cost of
operating the men and equipment. For example, if a major determinant of
equipment salvage value is the rate of obsolescence such as in the
computer industry, the depreciation cost is largely dependent on the
passage of time, not the hours worked. For a truck, tractor, or power saw, a
major determinant may be the actual hours of equipment use.
