Budget analysis and cost estimating- Construction overhead and profit

community 101
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I am studying for the Practice Management exam and am a bit confused with regards to Budget Analysis and Cost Estimating- Construction overhead and profit in a construction firm structure. Are material, labor, and equipment considered a general overhead cost (indirect) or a project overhead cost (direct)?

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Hi @ekulibert !

Thanks for your question!

Material would be a direct cost, the client is billed directly based on the materials that are ordered for the project. Labor can be both direct and indirect.

Just like in an architecture firm, any labor that is directly related to the project and can be billed to a client is a direct expense while any labor that can’t be billed to a client (ie marketing work, support staff like Human Resources or Office Manager, etc) would be considered indirect.

Equipment that is owned by the company is an indirect cost that can’t be billed to the client.

Hope that helps! Thanks!

-Rebecca

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Thanks Rebecca, as a follow-up would the healthcare and other like benefits of a construction worker be a direct cost billed to the project overhead costs because that is part of an hourly wage to have the worker on the job; Or would that portion be an indirect general overhead cost to the construction company?
Thank you, Erich

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Hi @ekulibert !

Another great question, thanks! Healthcare and other benefits would be an indirect/overhead cost to the construction company as these aren’t directly billed to the client. Thanks!

-Rebecca