Business FinancesQuestion 1228 of 1605
If a contractor's actual overhead runs 22% of direct costs but he only marks up 15% for overhead, over a year of $500,000 direct costs he under-recovers roughly:
a.$110,000
b.$35,000
c.$7,500
d.$75,000
Explanation
Under-recovery rate = 22% - 15% = 7% of direct costs. 7% x $500,000 = $35,000 of overhead not recovered through pricing, which comes straight out of profit. Accurate overhead rates are critical.
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