Overhead & Profit Calculation Flashcards

A contractor has annual general overhead of $480,000 and projects $2,400,000 in direct costs for the year. What overhead rate should be applied to each project's direct costs?

Answer: 20%

Overhead rate = $480,000 ÷ $2,400,000 = 20%.

Which of the following is classified as a job overhead (project overhead) cost rather than general overhead?

Answer: Temporary site fencing

Temporary site fencing is a direct project cost charged to a specific job, making it job overhead.

A contractor applies a 15% overhead markup and a 10% profit markup to direct costs. If direct costs are $50,000, what is the total bid price?

Answer: $62,500

Overhead = $7,500; Profit = $5,000 (10% of direct costs); Total = $50,000 + $7,500 + $5,000 = $62,500.

What does the term 'net profit' mean in construction estimating?

Answer: Profit remaining after all costs including overhead are subtracted from revenue

Net profit is what remains after subtracting all costs—direct costs and overhead—from total revenue.

A subcontractor quotes $80,000 for electrical work. A general contractor applies 10% overhead and 8% profit to the sub's price. What is the GC's total charge to the owner for this work?

Answer: $95,040

Overhead = $8,000; Profit = 8% × ($80,000 + $8,000) = $7,040; Total = $80,000 + $8,000 + $7,040 = $95,040.

Which allocation base is MOST commonly used to distribute general overhead across projects?

Answer: Total direct costs of each project

Most contractors allocate general overhead proportionally to each project's direct costs as the most equitable distribution method.

If a contractor's total revenue is $1,200,000 and net profit is $60,000, what is the net profit margin?

Answer: 5%

Net profit margin = $60,000 ÷ $1,200,000 = 5%.