CEC Overhead & Profit Calculation 2 — Questions and Answers
Question 1: 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?
- 10%
- 15%
- 20% (Correct answer)
- 25%
Correct answer: 20%
Overhead rate = $480,000 ÷ $2,400,000 = 20%.
Question 2: Which of the following is classified as a job overhead (project overhead) cost rather than general overhead?
- Office rent
- Accounting fees
- Temporary site fencing (Correct answer)
- Owner's salary
Correct answer: Temporary site fencing
Temporary site fencing is a direct project cost charged to a specific job, making it job overhead.
Question 3: 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?
- $57,500
- $62,500 (Correct answer)
- $63,250
- $72,500
Correct answer: $62,500
Overhead = $7,500; Profit = $5,000 (10% of direct costs); Total = $50,000 + $7,500 + $5,000 = $62,500.
Question 4: What does the term 'net profit' mean in construction estimating?
- Profit before overhead is deducted
- Profit remaining after all costs including overhead are subtracted from revenue (Correct answer)
- Total revenue minus direct labor only
- Markup percentage applied to material costs
Correct 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.
Question 5: 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?
- $94,400
- $95,040 (Correct answer)
- $96,000
- $97,440
Correct answer: $95,040
Overhead = $8,000; Profit = 8% × ($80,000 + $8,000) = $7,040; Total = $80,000 + $8,000 + $7,040 = $95,040.
Question 6: Which allocation base is MOST commonly used to distribute general overhead across projects?
- Square footage of each project
- Number of workers on each project
- Total direct costs of each project (Correct answer)
- Duration of each project in weeks
Correct 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.
Question 7: If a contractor's total revenue is $1,200,000 and net profit is $60,000, what is the net profit margin?
- 4%
- 5% (Correct answer)
- 6%
- 8%
Correct answer: 5%
Net profit margin = $60,000 ÷ $1,200,000 = 5%.
CEC Overhead & Profit Calculation 2
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?