Certified Residential Appraiser Practice Exam

Which type of costs are directly related to the construction process?

1. Indirect costs

2. Direct costs

3. Fixed costs

4. Variable costs

The correct answer is: Direct costs

Direct costs are expenses that can be directly attributed to a specific project or activity, such as the construction of a building. These costs typically include materials, labor, and any other expenses that are tied directly to the construction process. Since these costs are straightforward to identify and allocate – such as the cost of concrete for the foundation or the wages of construction workers – they are considered direct costs. In contrast, indirect costs are expenses that cannot be directly traced back to a specific project, such as administration expenses or utilities for a construction office. Fixed costs remain constant regardless of the level of activity, like rent for equipment, while variable costs fluctuate with the level of construction activity, such as the cost of raw materials. However, neither fixed nor variable costs directly tie to the construction activities in the manner that direct costs do.