Business FinancesQuestion 1116 of 1605
If a contractor underestimates his overhead rate when bidding, the most likely result is:
a.The CSLB raises his license classification
b.Jobs are underpriced and the business loses money even on 'profitable' jobs
c.Jobs are overpriced and he wins fewer bids
d.His income taxes automatically decrease
Explanation
If overhead is under-recovered in the markup, the price is too low to cover the true cost of running the business. The contractor may show a job profit but still lose money overall because actual overhead exceeds what was built into bids.
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Related questions on this topic
- A contractor's job has $10,000 direct costs. He adds 15% for overhead and then 10% profit on the resulting subtotal. What is the final price?
- Overhead costs are best described as:
- A contractor completes $800,000 in revenue with $560,000 direct costs and $160,000 overhead. What is the net profit and net profit margin?
- A contractor has fixed costs of $90,000 per year. His contribution margin (price minus variable cost) is 30% of revenue. What annual revenue does he need to break even?
- A contractor's fixed (overhead) costs are $60,000/year. Each job nets $2,000 of contribution margin. How many jobs must he complete to break even?
- The break-even point is best defined as the level of sales at which:
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Sen Lin, PrepPass Founder · Verified against California CSLB Contractor License Law & Business Exam · How we review
Reviewed by Abraham Chen — Licensed California General Contractor (CSLB License #1101856 — verify)