Business FinancesQuestion 1202 of 1605
A contractor's job had estimated direct costs of $40,000 but actual costs of $46,000. If he had bid a fixed price of $50,000, what was his actual gross profit, and how does it compare to the estimate?
a.$6,000 actual, above estimate
b.$10,000 actual, on target
c.$4,000 actual vs. $10,000 estimated - a $6,000 shortfall
d.A $46,000 loss
Explanation
Estimated gross profit = $50,000 - $40,000 = $10,000. Actual gross profit = $50,000 - $46,000 = $4,000. The $6,000 cost overrun cut profit from $10,000 to $4,000. Job costing exposes such overruns so future bids improve.
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