A contractor's gross profit margin has fallen from 30% to 22% over a year. The most useful first step to diagnose why is to:
Explanation
A falling gross margin means direct cost is taking a larger share of revenue, and only the job-cost reports say whether the cause is labour hours, material prices or subcontract cost, so that is where the diagnosis starts. Raising the markup treats the symptom before the cause is known and may simply lose bids. The franchise tax is an income tax below the gross-margin line and cannot move it. And bonding is a licensing requirement with no effect on job cost at all.
This topic, taught in full in the CSLB Law & Business guide. CSLB Law & Business — Complete Study Guide (2026) — PDF + EPUB, $24.99 · 14-day refund →
Practice all 1632 questions free — no signup required.
Own the complete CSLB Law & Business guide — PDF + EPUB, $24.99 →
Related questions on this topic
- A contractor's income statement shows revenue $400,000, cost of goods sold $280,000, and operating expenses $90,000. What is net income?
- The main financial risk of taking on a job much larger than a contractor's usual size is:
- A contractor buys $5,000 of materials with terms 1/15, net 45. If he pays on day 12, what does he pay?
- A contractor completes a $180,000 contract billed with 5% retention. Two-thirds of the way through he has billed $120,000. How much retention is being held at that point?
- Which of the following BEST reduces a contractor's need for outside financing on a project?
- A contractor's estimate omitted the 9% sales tax on $20,000 of materials. How much profit will this error erase if he cannot pass it on?
Last reviewed: · editorial process