CEC Overhead & Profit Calculation 3

Question 1

A contractor wants a 12% profit on the selling price (not cost). If direct costs plus overhead total $88,000, what should the bid price be?

Accepted Answer

$100,000

Answer

Bid price = $88,000 ÷ (1 − 0.12) = $88,000 ÷ 0.88 = $100,000.

Question 2

Which of the following best describes the break-even point for a construction company?

Accepted Answer

The revenue level at which total costs equal total income with zero profit

Answer

Break-even is when total revenue exactly covers all costs—direct and overhead—leaving zero net profit.

Question 3

A contractor's job overhead for a project includes: superintendent salary $15,000, portable toilets $600, temporary power $1,200, and job trailer $2,400. What is the total job overhead?

Accepted Answer

$19,200

Answer

$15,000 + $600 + $1,200 + $2,400 = $19,200.

Question 4

Why might a contractor apply a HIGHER profit margin on a risky or complex project?

Accepted Answer

To account for the increased likelihood of cost overruns and uncertainties

Answer

Higher risk projects warrant higher profit margins to compensate for potential cost overruns and uncertainties.

Question 5

If a contractor's markup on cost is 25%, what is the equivalent margin (profit as a percentage of selling price)?

Accepted Answer

20%

Answer

Margin = markup ÷ (1 + markup) = 0.25 ÷ 1.25 = 20%.

(CEC) Construction Estimator Certification Practice Test

(CEC) Construction Estimator Certification Practice Test

CEC Overhead & Profit Calculation 3