CSLB Law & Business ExamBusiness FinancesEasy
A contractor is preparing a bid for a new project. To accurately estimate the direct labor costs for the project, which of the following should be included in the calculation?
- ACost of materials, equipment rental fees, and administrative expenses.
- BMarketing expenses, vehicle depreciation, and general liability insurance.
- COffice manager's salary, health insurance premiums, and workers' compensation insurance.
- DJourneyman electrician's hourly wage, payroll taxes, and employer-paid benefits.
Show answer & explanationAnswer & explanation
Correct answer: D. Journeyman electrician's hourly wage, payroll taxes, and employer-paid benefits.
Direct labor costs include all expenses directly tied to the wages and benefits of workers performing the actual project work. This typically includes hourly wages, payroll taxes, and employer-paid benefits.
Why the other options are wrong
- A. These are direct material costs, direct equipment costs, and indirect administrative expenses, not direct labor.
- B. These are all indirect overhead costs, not direct labor costs.
- C. Office manager's salary is an indirect cost, and while health insurance and workers' comp can be direct, the office manager makes this option incorrect for direct labor.
Direct Labor Costs
Expenses directly associated with the wages, benefits, and payroll taxes of employees who physically work on a specific project.
- Directly traceable to a specific job.
- Includes hourly wages, employer-paid benefits, and payroll taxes.
- Essential for accurate job costing and bidding.
Memory trick: Direct costs are like the hands-on workers, indirect costs are the office support.