CPC CPC Construction Business Management & Finance

Question 1

What is the primary purpose of a 'Schedule of Values' submitted by a general contractor at project start?

Accepted Answer

Allocate the contract sum across project components as the basis for progress payment applications

Answer

Establish the owner's budget

Answer

Define the subcontractor bid amounts

Answer

List material delivery schedules

Question 2

In construction accounting, what does 'overbilling' (billing in excess of costs) on a percentage-completion contract indicate?

Accepted Answer

The contractor has billed for more work than its cost-to-date supports, representing deferred revenue

Answer

The contractor has completed more work than billed

Answer

The project is ahead of schedule

Answer

The owner has paid all invoices early

Question 3

What is a construction company's 'bonding capacity' and why is it important?

Accepted Answer

The maximum dollar value of work a surety will bond, determining how much the contractor can bid

Answer

The maximum number of concurrent projects allowed by the licensing board

Answer

The interest rate on the company's line of credit

Answer

The company's insurance policy limit

Question 4

Which financial ratio is most useful for assessing a construction contractor's short-term ability to pay current obligations?

Accepted Answer

Current ratio (current assets ÷ current liabilities)

Answer

Debt-to-equity ratio

Answer

Return on equity

Answer

Gross profit margin

Question 5

What is the purpose of a 'retainage' clause in a construction contract?

Accepted Answer

Withhold a percentage of each progress payment as security for project completion and correction of defects

Answer

Require the contractor to maintain on-site security

Answer

Retain ownership of materials until full payment

Answer

Require the owner to pay in advance

Question 6

In project accounting, what does the 'cost-to-complete' estimate represent?

Accepted Answer

The estimated remaining direct and indirect costs needed to finish the project

Answer

The total contract price

Answer

The amount already billed to the owner

Answer

The contingency reserve