Overhead & Profit Calculation Flashcards

A contractor uses the 'cost-plus' method and charges the owner actual costs plus 15% overhead and 10% fee. If actual direct costs are $200,000, what does the owner pay?

Answer: $253,000

Overhead = $30,000; Fee = 10% × ($200,000 + $30,000) = $23,000; Total = $200,000 + $30,000 + $23,000 = $253,000.

Which financial statement is MOST useful for verifying that overhead costs used in an estimate align with actual company performance?

Answer: Income statement (profit and loss)

The income statement shows actual revenue and expense categories including overhead, enabling comparison with estimated overhead rates.

A contractor estimates $40,000 in profit on a $500,000 project. Midway through, scope changes add $50,000 in direct costs. If no change order adjustment is made to the profit, what is the new profit percentage?

Answer: 7.3%

$40,000 ÷ $550,000 = 7.27%, approximately 7.3%.

What is the purpose of a 'contingency' in an estimate, and how does it differ from profit?

Answer: Contingency covers unknown or uncertain costs; profit is the reward for successful project management

Contingency addresses cost uncertainties and scope gaps, while profit is the contractor's intended return on investment.

A company's overhead costs are 18% of direct costs and profit goal is 10% of direct costs. What single markup percentage on direct costs achieves both?

Answer: 28%

Simply add the two percentages: 18% overhead + 10% profit = 28% combined markup on direct costs.

Which of the following would DECREASE a contractor's required overhead recovery rate?

Answer: Increasing annual construction volume

Increasing volume spreads fixed overhead across more projects, reducing the percentage needed from each project.

An estimator is preparing a bid for a $1,000,000 project. The company policy requires a minimum 6% net profit on revenue. What is the minimum acceptable net profit amount?

Answer: $60,000

6% of $1,000,000 revenue = $60,000 minimum net profit.