A contractor's monthly overhead is $28,000 and monthly direct labor is $95,000. What overhead percentage should be applied to direct labor costs in bid calculations?
Correct Answer
D) 29.5%
Overhead percentage = (Monthly Overhead ÷ Monthly Direct Labor) × 100 = ($28,000 ÷ $95,000) × 100 = 29.47%, which rounds to 29.5%. This rate allocates overhead costs proportionally to direct labor.
Why This Is the Correct Answer
Option B is correct because overhead percentage is calculated by dividing monthly overhead by monthly direct labor and multiplying by 100. The calculation is ($28,000 ÷ $95,000) × 100 = 0.2947 × 100 = 29.47%. When rounded to one decimal place, this equals 29.5%, which matches option B exactly.
Why the Other Options Are Wrong
Option A: 33.9%
Option A (22.7%) is incorrect because it represents an inaccurate calculation that likely reversed the division or used incorrect values in the overhead percentage formula.
Option B: 22.7%
Option C (33.9%) is incorrect because it significantly overestimates the overhead percentage, possibly from adding values incorrectly or using the wrong denominator in the calculation.
Option C: 29.2%
Option D (29.2%) is close but incorrect because it rounds the calculated percentage incorrectly - the actual result of 29.47% should round to 29.5%, not 29.2%.
Memory Technique
Remember 'OH over DL times 100' - Overhead over Direct Labor times 100 gives you the overhead percentage rate for bidding.
Reference Hint
Look up 'Overhead Allocation' or 'Job Costing' in construction management or estimating chapters of your reference materials, typically found in project management sections.
More Business & Finance Questions
A general contractor purchases equipment worth $45,000 with a useful life of 9 years and no salvage value. Using straight-line depreciation, what is the annual depreciation expense?
What is the typical recommended coverage amount for general liability insurance for a small to medium-sized general contracting business?
A contractor estimates startup costs of $75,000 for equipment, $25,000 for initial inventory, $15,000 for insurance premiums, and $10,000 for working capital. They can finance 70% of the total. How much cash do they need?
When establishing professional relationships with architects and engineers, what is the most important factor for a general contractor to consider?
A partnership agreement for a construction company should address all of the following EXCEPT:
A contractor purchases a truck for $60,000. After 5 years, it has accumulated depreciation of $35,000. What is the truck's book value?
A contractor's business plan projects first-year revenue of $500,000 with a 15% net profit margin. If actual revenue is $450,000 with the same profit margin, what is the variance in net profit?
Using the Modified Accelerated Cost Recovery System (MACRS), construction equipment is typically depreciated over how many years?
A contractor is comparing financing options for equipment purchase. Option A: $80,000 cash purchase. Option B: $20,000 down, $65,000 financed at 6% for 4 years. What is the total cost of Option B?
A contractor purchases equipment using a capital lease with a present value of $120,000. How should this be recorded on the balance sheet?