Contracts & ExecutionQuestion 157 of 1605
A contractor's annual overhead is $120,000 and projected annual direct job costs are $600,000. What overhead rate should be applied to each job's direct costs?
a.20%
b.16.7%
c.5%
d.50%
Explanation
The overhead rate is total overhead divided by total direct costs: $120,000 / $600,000 = 0.20, or 20%. Each job is marked up 20% of its direct costs to recover overhead.
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