Question

Projects often include indirect costs that are necessary to keep the organization running, but are not associated with one specific project. Which of the following items are most typically considered to be indirect costs?

A. travel cost for the project team
B. the cost of labor provided by project team members, consultants and subcontractors
C. executive salaries, utilities and insurance
D. costs associated with material and purchased parts

Answer 1

The correct answer is:

executive salaries, utilities and insurance (C.)

Step-by-step explanation:

Indirect costs are costs that are not directly attributable objectively to a good, project, facility or service. Indirect costs are either fixed or variable. Fixed indirect costs are costs that do not change as the units/volumes of production change, while variable indirect costs are costs that change with change in production units. Indirect cost can also be classified as either recurring or fixed. Recurring indirect costs are those that are repeated in nature, example is salaries of laborers, while fixed indirect can be cost of transportation. In this example, executive salaries, utilities and insurance are not directly attributable to a specific project at hand; the executives do not partake in the project hands-on, insurance and utilities such as electricity rent are not project-specific and it is financially infeasible to do so.

On the other hand, direct costs are costs that are directly attributable to the object, and it is financially feasible to do so, hence travel cost, labor, consultant and subcontractors costs, and material costs are all directly linked to the project (object).