A contractor's annual revenue is $2.4 million with a net profit margin of 8%. Fixed overhead costs are $180,000 annually. Variable costs run 75% of revenue. What profit percentage should be added to bids to maintain the current profit margin?
Correct Answer
B) 8.7%
Current profit = $2.4M × 0.08 = $192,000. Total costs = $2.4M - $192,000 = $2.208M. To maintain 8% margin: Profit % = $192,000 ÷ $2.208M = 8.7%.
Why This Is the Correct Answer
Current profit = $2.4M × 0.08 = $192,000. Total costs = $2.4M - $192,000 = $2.208M. To maintain 8% margin: Profit % = $192,000 ÷ $2.208M = 8.7%.
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