A contract allows 10 percent overhead and then 5 percent profit on a $18,000 direct-cost change. If profit is applied after overhead, what total proposal amount results?
Correct Answer
A) $20,790
After overhead, $18,000 × 1.10 = $19,800. Profit applies to that subtotal: $19,800 × 0.05 = $990; total = $20,790. $19,800 omits profit, and $20,700 applies both percentages to direct cost instead of the stipulated sequential bases.
Why This Is the Correct Answer
After overhead, $18,000 × 1.10 = $19,800. Profit applies to that subtotal: $19,800 × 0.05 = $990; total = $20,790. $19,800 omits profit, and $20,700 applies both percentages to direct cost instead of the stipulated sequential bases.
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