Planning & EstimatingQuestion 615 of 700
A contractor's annual overhead is $120,000 and expects about $600,000 in direct job costs for the year. To recover overhead evenly, approximately what percentage should be added to each job's direct cost for overhead?
a.12%
b.20%
c.25%
d.5%
Explanation
Overhead recovery rate = annual overhead / annual direct costs = 120,000 / 600,000 = 0.20 = 20%. Adding 20% of direct cost to each job spreads the overhead across the year's work. Correct answer is 20%. '12%' and '5%' understate the ratio. '25%' would result from dividing 120,000 by 480,000, an incorrect base.
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