Practice Test Geeks(CEC) Construction Estimator Certification Practice Test
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Overhead & Profit Calculation Flashcards

7 cards from real CEC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Overhead & Profit Calculation flashcards as text

  1. A contractor tracks that actual overhead spending exceeded the budgeted overhead by $25,000 at year-end. What is the BEST corrective action for future bids?

    Answer: Review and increase the overhead rate used in estimates

    If actual overhead consistently exceeds the budgeted rate, the overhead rate used in future bids must be recalibrated upward.

  2. In competitive bidding, a contractor may intentionally reduce the profit margin. Which of the following is a legitimate reason to do so?

    Answer: To keep crews busy during a slow period and cover overhead

    Reducing profit margin to win work during slow periods helps maintain cash flow and cover ongoing overhead costs.

  3. A contractor's direct costs are $750,000, job overhead is $50,000, and general overhead allocation is $100,000. If the contractor bids $1,000,000, what is the gross profit amount?

    Answer: $100,000

    Gross profit = Revenue − Direct costs − All overhead = $1,000,000 − $750,000 − $50,000 − $100,000 = $100,000.

  4. Which overhead allocation method assigns costs based on the number of labor hours each project consumes?

    Answer: Labor hour allocation method

    The labor hour allocation method distributes overhead proportionally to the direct labor hours charged to each project.

  5. A contractor wants to calculate the overhead as a percentage of labor only (not all direct costs). Annual overhead is $200,000 and annual labor costs are $800,000. What is the labor burden overhead rate?

    Answer: 25%

    $200,000 ÷ $800,000 = 25% overhead rate applied to labor costs.

  6. If an owner requests a 'value engineering' reduction of 5% on a $600,000 bid, and the contractor's overhead is fixed at $60,000, how does this primarily affect the contractor's position?

    Answer: Profit is compressed since overhead remains fixed

    Reducing the bid price while fixed overhead stays constant squeezes the contractor's profit margin.

  7. A contractor applies overhead and profit as a combined 'O&P' percentage of 20% on a restoration job. The adjuster's direct cost estimate is $85,000. What total should the contractor invoice?

    Answer: $102,000

    $85,000 × 1.20 = $102,000 total invoice amount.