A general contractor's total project costs are $1,250,000. General overhead is 8% and profit margin is 12%. What should be the bid amount?
Correct Answer
B) $1,512,000
First add overhead: $1,250,000 × 1.08 = $1,350,000. Then add profit to the cost plus overhead: $1,350,000 × 1.12 = $1,512,000.
Why This Is the Correct Answer
Step 1 — add overhead: $1,250,000 × 1.08 = $1,350,000. Step 2 — add profit on top of the cost-plus-overhead subtotal: $1,350,000 × 1.12 = $1,512,000. Overhead and profit are applied sequentially, not both to the original base cost.
Why the Other Options Are Wrong
Option A: $1,500,000
$1,500,000 results from applying a flat 20% (8% + 12%) to the base cost: $1,250,000 × 1.20 = $1,500,000. This ignores that profit is applied after overhead, not simultaneously to the base.
Option C: $1,400,000
$1,400,000 could reflect adding only the profit (12%) to the base cost and ignoring overhead, or applying a rough 12% to $1,250,000 and rounding: $1,250,000 × 1.12 ≈ $1,400,000.
Option D: $1,456,000
$1,456,000 does not match any standard calculation path and may result from applying the percentages in the wrong order or mixing addition and multiplication steps.
Memory Technique
Cost → +Overhead → +Profit. Never combine the percentages. Think of it as a two-step escalator: ride step 1 (overhead) to a new floor, then ride step 2 (profit) from that new floor.
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