Overhead & Profit Calculation Flashcards

A contractor wants a 15% profit on total project cost (not on selling price). If total costs are $850,000, what should the bid price be?

Answer: $977,500

Profit on cost = $850,000 × 0.15 = $127,500; bid = $850,000 + $127,500 = $977,500.

A contractor wants a 12% profit margin on selling price. What markup on cost achieves this?

Answer: 13.6%

Markup on cost = margin / (1 − margin) = 0.12 / 0.88 ≈ 13.6%.

Which of the following is NOT typically included in a contractor's general overhead?

Answer: Concrete formwork materials for a specific job

Concrete formwork for a specific job is a direct project cost, not a general overhead expense.

In a unit-price contract, how should overhead and profit be incorporated into bid unit prices?

Answer: Included within each unit price proportionally

In unit-price contracts, overhead and profit are embedded in each unit price so costs and margins are recovered as quantities are earned.

A company's break-even volume is the point where:

Answer: Total costs equal total revenue with zero profit

Break-even is where total revenue covers all costs (direct + overhead) leaving zero profit.

Which scenario would cause a contractor to UNDER-recover overhead costs on a project?

Answer: Actual direct costs are lower than budgeted

If overhead is applied as a percentage of direct costs and actual direct costs are lower than planned, fewer overhead dollars are recovered.

A project's direct costs are $400,000. Overhead is applied at 15% and profit at 8% of the cost-plus-overhead total. What is the total bid?

Answer: $498,960

Cost + overhead = $400,000 × 1.15 = $460,000; bid = $460,000 × 1.08 = $496,800 — closest is $496,800, but recalculated: $460,000 × 1.08 = $496,800.