Business FinancesQuestion 1221 of 1605
A contractor's contract price is $100,000 with a 15% profit margin built in. Midway, unforeseen soil conditions add $12,000 of unrecoverable cost. What happens to profit?
a.Profit falls from $15,000 to $3,000
b.Profit is unchanged at $15,000
c.The job now breaks even exactly
d.Profit rises to $27,000
Explanation
Built-in profit = 15% of $100,000 = $15,000. An extra $12,000 of unrecoverable cost reduces profit to $15,000 - $12,000 = $3,000. This shows why contingencies and change orders for unforeseen conditions protect margin.
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