A $25,000 appliance allowance is reconciled to an approved actual cost of $31,000. The contract allows 10 percent markup on allowance overruns. What additive change is due?
Correct Answer
B) $6,600
The overrun is $31,000 - $25,000 = $6,000. With 10% markup, the additive change is $6,000 x 1.10 = $6,600. Other choices mark up the full actual cost, omit markup, or add allowance and actual cost.
Why This Is the Correct Answer
The overrun is $31,000 - $25,000 = $6,000. With 10% markup, the additive change is $6,000 x 1.10 = $6,600. Other choices mark up the full actual cost, omit markup, or add allowance and actual cost.
Why the Other Options Are Wrong
Option A: $3,100
allowance overrun with markup, choice a: $3,100 takes one allowance-side amount as the adjustment.
Option C: $6,000
allowance overrun with markup, choice c: $6,000 stops after overrun is 31000 - 25000 = 6000 and omits the final step to $6,600.
Option D: $56,000
allowance overrun with markup, choice d: $56,000 takes one allowance-side amount as the adjustment.
Memory Technique
Remember allowance overrun with markup as "base, adjustment, final unit"; the last unit should read $6,600.
Reference Hint
Open Construction Project Management, 5th Ed. (2022); use the index entry or section for "Allowance overrun markup" to confirm that The overrun is $31,000 - $25,000 = $6,000.
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