Direct cost
Direct cost groups only the resources that are incorporated into or consumed while executing a work item: the materials that remain in the finished work, the labor that installs them and the equipment or tools used to do it. It does not include administrative expenses, home-office overhead, general supervision or financing; those are accounted for separately as indirect costs.
It is calculated per unit of measure of the item (m³, m², ton, each). For every input you multiply its consumption rate —the quantity needed per unit— by its unit cost, and you add up the three groups: materials, labor and equipment. That result is the unit direct cost, which is then marked up with the percentages for indirect costs, financing, profit and additional charges to arrive at the unit price.
Public works regulations and standard estimating practice define and separate direct cost from indirect cost within the unit price analysis. Distinguishing them correctly is required on public projects and is standard practice on private work, because misclassifying an expense as direct or indirect distorts the entire budget.
Formula
Example
Direct cost of 1 m³ of concrete f’c=200: materials (cement, sand, gravel, water) 1,450 + labor (mason and helper crew) 380 + equipment (concrete mixer) 70 = 1,900 per m³. Indirect costs and profit are then applied on top of that direct cost.
| Item | Unit | Quantity | Unit price | Amount |
|---|---|---|---|---|
| Materials | ||||
| Red clay brick | pza | 42.00 | $6.80 | $285.60 |
| Cement-sand mortar 1:4 | m³ | 0.030 | $2,150 | $64.50 |
| Labor | ||||
| Mason | jor | 0.180 | $520 | $93.60 |
| Laborer | jor | 0.180 | $380 | $68.40 |
| Equipment | ||||
| Small tools 3% | % | — | — | $4.86 |
Frequently asked questions
How is direct cost calculated?
It is calculated per unit of the work item: for each input you multiply its consumption rate (quantity per unit) by its unit cost, and you add up materials, labor and equipment or tools. That sum is the unit direct cost.
What is the difference between direct cost and indirect cost?
Direct cost is the inputs that physically go into the item (materials, labor and equipment). Indirect cost is the expenses that are not incorporated into the work but are needed to carry it out: administration, home-office overhead, supervision and financing. Indirect cost is applied as a percentage on top of the direct cost.
What does direct cost include?
It includes three groups: materials (those that remain in or are consumed by the work), labor (the crews that perform the work) and the equipment, machinery and tools used to carry it out. It does not include indirect costs, financing or profit.