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

The Schedule of Values breaks the contract sum into components so that progress payments can be calculated based on the percentage of each component completed.

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

Overbilling means the contractor has collected more cash than its percentage of completion justifies, creating a liability (deferred revenue or billings in excess of costs).

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

Bonding capacity is the aggregate dollar limit a surety will provide, directly capping the contractor's ability to bid and win bonded public and private projects.

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

The current ratio measures liquidity by comparing current assets to current liabilities; a ratio above 1.0 means the contractor can cover short-term obligations.

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

Retainage (typically 5–10%) is withheld from progress payments and held until substantial completion and correction of punchlist items, protecting the owner.

(CPC) Certified Professional Constructor Practice Test

(CPC) Certified Professional Constructor Practice Test

CPC CPC Construction Business Management & Finance