Which term describes costs that are charged to customers or projects but pass through to external parties?

• A. Pass-through
• B. Direct costs
• C. Overhead
• D. Capital costs

Answer: (A)

Pass-through costs are expenses charged to a customer or project that simply pass through to the external party paying for them. The organization collects these costs on behalf of the client and then forwards them, without absorbing them into internal profit or applying internal overhead. This makes the term a precise fit for expenses like permits, subcontractor charges, or shipping fees billed to the client at cost or per contract terms.

Direct costs are the expenses tied directly to a project’s production (like labor and materials used on the job) and stay with the project’s cost, overhead are indirect costs covering the company’s operations (admin, utilities, rent) not tied to a single project, and capital costs are long-term investments in assets that are depreciated over time.