Overhead & Profit Calculation Flashcards

A contractor bids $500,000 and wins the job. If actual costs run $480,000 and overhead was budgeted at 10% of direct costs ($436,364 base), what is the actual profit in dollars?

Answer: $20,000

Actual profit = bid price minus actual total costs: $500,000 − $480,000 = $20,000.

Which term describes the practice of allocating a portion of home-office overhead to each project based on its share of total revenue?

Answer: Revenue-based proration

Revenue-based proration assigns home-office overhead to projects proportionally by each project's share of total company revenue.

A subcontractor markup of 10% is applied to cover the general contractor's overhead and profit on subcontracted work. This practice is known as:

Answer: Pass-through markup

A pass-through markup is the percentage a GC adds to subcontractor costs to cover its own overhead and profit on that work.

If a contractor's overhead rate is 18% of direct costs and direct costs for a project are $750,000, what dollar amount is allocated to overhead?

Answer: $135,000

$750,000 × 0.18 = $135,000 allocated to overhead.

Which method of recovering overhead is most appropriate when projects vary widely in labor intensity but have similar material costs?

Answer: Percentage of direct labor costs

Applying overhead as a percentage of direct labor captures variation in labor-intensive overhead drivers when labor intensity differs across projects.

A contractor earns $2,000,000 in revenue and spends $1,600,000 on direct costs and $300,000 on overhead. What is the net profit margin?

Answer: 10%

Net profit = $2,000,000 − $1,600,000 − $300,000 = $100,000; margin = $100,000 / $2,000,000 = 5%.

Extended general conditions costs that arise from an owner-caused delay are typically classified as:

Answer: Compensable job overhead subject to a change order

Extended general conditions caused by the owner are compensable and should be claimed via change order as additional job overhead.