CPE Overhead & Profit Calculation 3

Question 1

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?

Accepted Answer

$20,000

Answer

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

Question 2

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

Accepted Answer

Revenue-based proration

Answer

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

Question 3

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

Accepted Answer

Pass-through markup

Answer

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

Question 4

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?

Accepted Answer

$135,000

Answer

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

Question 5

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

Accepted Answer

Percentage of direct labor costs

Answer

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

(CPE) Certified Professional Estimator Practice Test

(CPE) Certified Professional Estimator Practice Test

CPE Overhead & Profit Calculation 3