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    What is a Project Cost

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    Jeba Sharmin Srity
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    What is a Project Cost

    Uploaded by

    Jeba Sharmin Srity
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    Copyright:

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    0 views2 pages

    What is a Project Cost

    Uploaded by

    Jeba Sharmin Srity
    hhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    What is a Project Cost? A project cost is any expense incurred to complete a specific project.

    This includes everything from labor and materials to permits and overhead.

    Types of Project Costs:

    1. Direct Costs:
    o Labor Costs: Salaries and wages of employees directly working on the project.
    o Material Costs: Cost of raw materials, supplies, and components.
    o Equipment Costs: Rental or purchase costs of equipment.
    2. Indirect Costs:
    o Overhead Costs: General expenses like rent, utilities, and administrative salaries.
    o General and Administrative (G&A) Costs: Costs associated with running the
    overall business, such as accounting, legal, and HR.

    Example: Building a New Office

    Handling Overhead Costs in Diff erent Contract Types


    and Internal Projects:
    Overhead costs are indirect expenses that cannot be directly traced to a specific
    product or project. Examples include rent, utilities, administrative salaries, and
    insurance.

    Cost-Plus Contract

     Direct Allocation: Allocate overhead costs directly to the project based on a


    predetermined rate (e.g., percentage of direct labor cost or a fixed fee).
     Absorption Costing: Allocate overhead costs to the project based on a predetermined
    overhead rate, which is calculated by dividing total overhead costs by a specific cost
    driver (e.g., direct labor hours or machine hours).
     Activity-Based Costing (ABC): Allocate overhead costs to the project based on the
    specific activities performed, providing a more accurate allocation.

    Fixed-Fee Contract

     Predetermined Overhead Rate: Allocate overhead costs to the project using a


    predetermined overhead rate, similar to the absorption costing method.
     Fixed Fee Adjustment: If the actual costs differ significantly from the estimated costs,
    negotiate a fixed fee adjustment to account for the overhead variance.

    Internal Project
     Allocation Based on Resource Usage: Allocate overhead costs to the project based on
    the resources (e.g., labor, equipment) used by the project.
     Chargeback Method: Charge the project a specific amount for overhead costs, similar to
    a cost-plus contract.
     Absorption Costing: Use absorption costing to allocate overhead costs to the project
    based on a predetermined overhead rate.

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