A construction budget classifies labor of $280,000, materials of $145,000 and contractor overhead/profit of $48,000 as hard costs. No other budget items are hard costs. What is the total hard cost?
Correct Answer
D) $473,000
280000+145000+48000 = 473000. Common errors: leaving out contractor overhead/profit gives $425,000; leaving out materials gives $328,000; reporting labor only gives $280,000.
Why This Is the Correct Answer
Option D is correct because the stated classification puts labor, materials and contractor overhead/profit in the hard-cost subtotal. $280,000 + $145,000 + $48,000 = $473,000. Other production fees are excluded, so nothing else is added.
Why the Other Options Are Wrong
Option A: $280,000
Option A, $280,000, reports labor only. The subtotal also includes $145,000 of materials and $48,000 of contractor overhead/profit, for $473,000.
Option B: $328,000
Option B, $328,000, is $280,000 + $48,000, which leaves out the $145,000 of materials. Including materials gives $473,000.
Option C: $425,000
Option C, $425,000, is $280,000 + $145,000, which leaves out the $48,000 contractor overhead/profit that the budget places in hard costs. The full subtotal is $473,000.
Hard costs build the building
Hard costs are what it takes to put the structure up: labor, materials and the contractor's markup. Fees and financing are soft costs.
How to use: Use this to sort cost items into hard and soft categories on cost buildup questions.
Exam Tip
Follow the classification the question states, especially for items like contractor overhead and profit. Add only the items placed in the requested subtotal.
Common Mistakes to Avoid
- -Leaving contractor overhead and profit out of hard costs
- -Including soft fees in the hard-cost subtotal
- -Reporting only labor as the hard cost
Concept Deep Dive
Analysis
This question tests building a hard-cost subtotal under a stated classification. The budget places labor, materials and contractor overhead and profit inside hard costs and puts other fees outside. Add the three included items.
Background Knowledge
Hard (direct) costs are the costs of physically constructing the improvements, such as labor, materials and contractor overhead and profit. Soft (indirect) costs include items like architectural fees, permits, financing and insurance. Classification can vary between sources, so the stated definition controls the calculation.
Real-World Application
An appraiser reviewing a construction budget for a new building separates the contractor's labor, materials and overhead/profit from architect, permit and loan fees. The hard-cost subtotal is checked against cost service data before soft costs are added.
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Previous Question
A supported whole-property external loss is $28,000. Independent allocation evidence expressly assigns 70% of the LOSS to improvements and 30% to site. What improvement loss results? Do not infer the allocation solely from a land/value ratio.
Next Question
Installed direct construction costs of the improvements total $400,000. Indirect costs of $60,000 are not included in that figure, and together the two amounts cover all required cost components. Land is excluded. What is the full cost new of the improvements?