A contractor's home office overhead includes $85,000 annual rent, $120,000 salaries, and $45,000 other expenses. If they plan $2,500,000 in annual volume, what overhead percentage should be applied to bids?
Correct Answer
A) 10.0%
Total overhead: $85,000 + $120,000 + $45,000 = $250,000. Overhead percentage: $250,000 ÷ $2,500,000 = 10.0%.
Why This Is the Correct Answer
To calculate overhead percentage, first sum all overhead costs: $85,000 (rent) + $120,000 (salaries) + $45,000 (other) = $250,000 total overhead. Then divide by planned annual volume: $250,000 ÷ $2,500,000 = 0.10 = 10.0%. This percentage represents the portion of each project dollar needed to cover home office overhead expenses.
Why the Other Options Are Wrong
Option C: 10.8%
8.5% would result from incorrectly calculating total overhead as $212,500 instead of $250,000, possibly by omitting one of the overhead categories or making an arithmetic error in the addition of the three overhead components.
Option D: 8.5%
9.2% would result from calculating total overhead as $230,000 instead of $250,000, likely from an error in adding the overhead components or possibly using an incorrect annual volume figure in the denominator.
Memory Technique
Remember 'RAG' for overhead: Rent + Administrative salaries + General expenses. Then divide total by annual volume for percentage.
More NASCLA Questions
Which AIA document contains the general conditions that govern the rights and responsibilities of all parties in a construction contract?
A construction company has direct labor costs of $85,000, direct materials of $120,000, and overhead costs of $45,000 for a project. What is the total job cost?
What is the primary purpose of job cost accounting in construction?
A construction company has current assets of $350,000 and current liabilities of $280,000. What is the company's working capital?
In CSI MasterFormat, which division covers earthwork and site preparation?
In a mechanical drawing, what does 'CFM' typically measure?
In CSI MasterFormat Division 08, which of the following would typically be included?
On a mechanical plan, what does the symbol 'RTU' typically indicate?
What is the minimum preheat temperature for welding ASTM A992 steel when the ambient temperature is 15°F?
A general contractor's balance sheet shows total assets of $850,000, current liabilities of $320,000, and long-term debt of $180,000. What is the company's equity?
People Also Study
Business & Financial Management
120 questions · 70% to pass
Contract Administration
60 questions · 70% to pass
Project Management
60 questions · 70% to pass
Related Study Resources
Previous Question
A contractor submits Application for Payment #8 requesting $485,000. The contract has 5% retainage, but the architect approves only $465,000 of the requested amount due to deficient work. How much should the owner pay?
Next Question
Which insurance coverage is specifically designed to protect against losses to a building under construction due to fire, theft, or weather damage?