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
Overhead subtotal is $18,000 x 1.10 = $19,800. Profit after overhead is $19,800 x 1.05 = $20,790. Other choices omit profit, add simple percentages incorrectly, or round to an unsupported amount.
Why This Is the Correct Answer
Overhead subtotal is $18,000 x 1.10 = $19,800. Profit after overhead is $19,800 x 1.05 = $20,790. Other choices omit profit, add simple percentages incorrectly, or round to an unsupported amount.
Why the Other Options Are Wrong
Option B: $19,800
change-order markup, choice a: $19,800 stops after overhead subtotal is 18000 x 1.10 = 19800 and omits the final step to $20,790.
Option C: $20,700
change-order markup, choice b: $20,700 applies only part of the markup/burden sequence or applies it to the wrong subtotal.
Option D: $21,000
change-order markup, choice c: $21,000 applies only part of the markup/burden sequence or applies it to the wrong subtotal.
Memory Technique
Store change-order markup with its last math move; nearby answers are usually unfinished versions of $20,790.
Reference Hint
Open NASCLA Contractors Guide to Business, Law and Project Management, 14th Ed.; use the index entry or section for "Change-order markup calculation" to confirm that Overhead subtotal is $18,000 x 1.10 = $19,800.
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