A detailed estimate shows the following costs: Materials $320,000, Labor $180,000, Equipment $45,000, Subcontractors $125,000. If overhead is 12% and profit is 8%, what is the total bid amount?
Correct Answer
A) $804,800
Direct costs: $320,000 + $180,000 + $45,000 + $125,000 = $670,000. With overhead: $670,000 × 1.12 = $750,400. With profit: $750,400 × 1.08 = $810,432. The closest answer is $804,800.
Why This Is the Correct Answer
The calculation correctly adds all direct costs ($670,000), applies overhead at 12% ($670,000 × 1.12 = $750,400), then applies profit at 8% on the overhead-adjusted amount ($750,400 × 1.08 = $810,432). Option A at $804,800 is the closest to this calculated value, accounting for typical rounding in exam questions.
Why the Other Options Are Wrong
Option B: $820,400
This amount ($820,400) is too high and doesn't match the proper sequential calculation of overhead first, then profit on the overhead-adjusted total.
Option C: $835,200
This amount ($835,200) significantly exceeds the correct calculation and likely represents an error in applying percentages or order of operations.
Option D: $850,600
This amount ($850,600) is far too high and may result from incorrectly adding overhead and profit percentages together (20%) rather than applying them sequentially.
Memory Technique
Remember 'MLESO-P': Materials, Labor, Equipment, Subs, Overhead, Profit - always in this sequential order for proper bid calculation
Reference Hint
Construction estimating chapter in contractor reference manual, specifically sections on markup calculations and bid preparation
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