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Overhead & Profit Calculation Flashcards

7 cards from real CPE practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

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  1. A contractor's annual general overhead is $480,000 and projected annual revenue is $3,200,000. What overhead rate should be applied to direct costs if direct costs are 75% of revenue?

    Answer: 20%

    Direct costs = $3,200,000 × 0.75 = $2,400,000; overhead rate = $480,000 / $2,400,000 = 20%.

  2. Which cost is most accurately classified as a project-specific (job) overhead rather than general overhead?

    Answer: Temporary site fencing

    Temporary site fencing is a cost incurred solely for one project, making it a job overhead item.

  3. A contractor applies a 12% overhead markup and a 10% profit markup sequentially to $100,000 in direct costs. What is the final bid price?

    Answer: $123,200

    Overhead: $100,000 × 1.12 = $112,000; profit: $112,000 × 1.10 = $123,200.

  4. When overhead is expressed as a percentage of direct labor only, which overhead items are most appropriate to include in that pool?

    Answer: Labor-related burdens such as supervision and small tools

    Labor-driven overhead items like supervision and small tools are most logically allocated as a percentage of direct labor.

  5. A company has fixed overhead of $200,000 and variable overhead of $1.50 per direct labor hour. If 80,000 labor hours are projected, what is the total overhead?

    Answer: $320,000

    Variable overhead = 80,000 × $1.50 = $120,000; total = $200,000 + $120,000 = $320,000.

  6. What is the primary risk of using prior-year overhead rates without adjustment when bidding new work?

    Answer: Rates may not reflect current cost structure or volume changes

    Prior-year rates can be distorted by one-time costs or volume levels that do not represent future conditions.

  7. On a cost-plus contract with a guaranteed maximum price (GMP), how does the contractor typically handle overhead recovery if actual costs come in below the GMP?

    Answer: Overhead is recovered on actual costs only and savings may be shared per contract terms

    In a GMP contract, overhead is earned on actual incurred costs, and any savings below GMP are distributed per the contract's shared-savings clause.