CLC CLC Estimating & Cost Control 2 — Questions and Answers
Question 1: What is the purpose of a contingency allowance in a project estimate?
- To increase profit beyond the normal margin
- To cover unforeseen conditions or scope items discovered during construction (Correct answer)
- To pay subcontractor markup
- To fund tool purchases
Correct answer: To cover unforeseen conditions or scope items discovered during construction
A contingency (typically 5–15% of total cost) is a financial reserve for unknown or unforeseen conditions that could not be priced during the estimate phase.
Question 2: Which document formally authorizes additional work beyond the original contract scope?
- Purchase order
- Change order (Correct answer)
- Lien waiver
- Draw schedule
Correct answer: Change order
A change order is a signed written agreement between the contractor and client that authorizes changes in scope, cost, or schedule before the additional work begins.
Question 3: To calculate a selling price that includes overhead and profit, a contractor should:
- Add profit to direct costs only, ignoring overhead
- Divide direct costs by (1 minus the desired margin percentage) (Correct answer)
- Multiply material cost by a flat labor rate
- Add 10% to total hours worked
Correct answer: Divide direct costs by (1 minus the desired margin percentage)
Using markup on cost versus margin on price are different calculations — to hit a target gross margin, divide cost by (1 − margin%) rather than simply adding the percentage to cost.
Question 4: What is a Schedule of Values (SOV) used for on a construction project?
- Listing material prices from suppliers
- Breaking the contract sum into line items tied to measurable work for progress billing (Correct answer)
- Scheduling tool deliveries
- Tracking subcontractor hours
Correct answer: Breaking the contract sum into line items tied to measurable work for progress billing
A Schedule of Values assigns a dollar amount to each phase or work item so that progress payments can be calculated based on the percentage of each item completed.
Question 5: Job costing involves comparing:
- Supplier quotes to retail prices
- Actual job costs to estimated job costs to measure profitability (Correct answer)
- Overhead to profit
- Material costs to labor hours only
Correct answer: Actual job costs to estimated job costs to measure profitability
Job costing tracks actual labor, material, and overhead costs incurred on a specific project and compares them to the original estimate to determine job profitability.
Question 6: Which of the following best describes the concept of 'breakeven point' for a carpentry business?
- The revenue level at which total income equals total costs with zero profit (Correct answer)
- The point at which material costs equal labor costs
- The job where profit first exceeds overhead
- The minimum number of workers needed
Correct answer: The revenue level at which total income equals total costs with zero profit
The breakeven point is the revenue level at which total sales exactly cover all fixed and variable costs, resulting in neither profit nor loss.
CLC CLC Estimating & Cost Control 2
What is the purpose of a contingency allowance in a project estimate?