General Contractor License Business and Finance Management 4 — Questions and Answers
Question 1: A contractor wants to determine if a project is profitable mid-job. Which document provides the best real-time comparison of budgeted vs. actual costs?
- General ledger
- Job cost report (Correct answer)
- Accounts payable aging report
- Balance sheet
Correct answer: Job cost report
A job cost report compares estimated costs to actual costs incurred, allowing mid-project profitability analysis by cost category.
Question 2: Under the completed-contract accounting method, revenue and expenses are recognized:
- Monthly based on invoices submitted
- When the project reaches substantial completion (Correct answer)
- As materials are delivered to the job site
- When the subcontractors are paid
Correct answer: When the project reaches substantial completion
The completed-contract method defers all revenue and expense recognition until the project is substantially complete.
Question 3: An owner withholds 10% of each progress payment until project completion. This withheld amount is called:
- Liquidated damages
- Retainage (Correct answer)
- Mobilization fee
- Contingency reserve
Correct answer: Retainage
Retainage is a percentage of earned payment withheld by the owner as security to ensure the contractor completes the work satisfactorily.
Question 4: Which of the following is considered a direct cost on a construction project?
- Office rent
- Field supervisor wages on the job site (Correct answer)
- Company vehicle insurance
- Accounting software subscription
Correct answer: Field supervisor wages on the job site
Direct costs are directly attributable to a specific project, including on-site labor, materials, and equipment used for that job.
Question 5: A contractor's net profit margin is 5% on a $2,000,000 project. What is the net profit?
- $10,000
- $50,000
- $100,000 (Correct answer)
- $200,000
Correct answer: $100,000
Net profit = Revenue × Profit margin: $2,000,000 × 5% = $100,000.
Question 6: Which type of estimate is typically most accurate and used as the basis for a formal bid?
- Ballpark estimate
- Conceptual estimate
- Detailed quantity takeoff estimate (Correct answer)
- Square footage estimate
Correct answer: Detailed quantity takeoff estimate
A detailed quantity takeoff estimate quantifies every material and labor unit required, providing the highest level of accuracy for bidding.
Question 7: A contractor who fails to carry required workers' compensation insurance may face which consequence?
- Reduced bonding capacity only
- License suspension, fines, and personal liability for worker injuries (Correct answer)
- Mandatory project shutdown for 30 days
- Loss of general liability coverage only
Correct answer: License suspension, fines, and personal liability for worker injuries
Operating without required workers' compensation exposes contractors to license revocation, significant fines, and direct liability for injured workers' costs.
General Contractor License Business and Finance Management 4
A contractor wants to determine if a project is profitable mid-job.
Which document provides the best real-time comparison of budgeted vs. actual costs?