CSLB Business Finances Practice Questions
Knowing how to build a job, price it, track the money, and pay your taxes is what keeps a contracting business alive. This chapter walks through cash management, estimating, financial statements, and the federal and California tax rules a licensed contractor must understand.
Sample Business Finances questions
1. A contractor estimates a job will cost $80,000 in direct costs and wants a 25% markup on cost. What should the bid price be?
Markup on cost means adding the markup percentage to the cost: $80,000 × 1.25 = $100,000. Markup on cost and margin on sales produce different results — always clarify which method is being used.
2. What is the difference between "markup" and "margin"?
Markup is the profit added as a percentage of cost. Gross margin (gross profit margin) is profit expressed as a percentage of the selling (contract) price. A 25% markup ≠ 25% margin.
3. A contractor has fixed monthly overhead of $10,000 and a variable cost ratio of 70% of revenue. What monthly revenue is needed to break even?
Break-even = Fixed Costs ÷ (1 − Variable Cost Ratio) = $10,000 ÷ (1 − 0.70) = $10,000 ÷ 0.30 = $33,333. At this revenue, total costs equal total revenue.
4. Which of the following is considered a FIXED cost for a contracting business?
Fixed costs remain constant regardless of business volume. Office rent, insurance premiums, and loan payments are fixed. Materials, subcontractors, and job-specific fuel are variable costs.
5. A contractor's job cost sheet shows: Materials $30,000, Labor $20,000, Subcontractors $15,000, Overhead allocation $10,000. What is the total direct job cost?
Total job cost includes all costs attributable to the project: $30,000 + $20,000 + $15,000 + $10,000 = $75,000. All four items are legitimate project costs.
6. A contractor takes out a $50,000 equipment loan at 8% annual interest. What is the simple interest owed for 6 months?
Simple interest = Principal × Rate × Time = $50,000 × 0.08 × 0.5 = $2,000. For 6 months (half year), use 0.5 as the time factor.
7. Cash flow problems in contracting most commonly occur when:
Cash flow gaps arise when contractors must pay workers, suppliers, and subcontractors before receiving payment from the client. Managing payment schedules and draw requests is critical.
8. A contractor prepares an estimate and adds 15% to cover overhead and 10% profit on top of that. If direct costs are $50,000, what is the bid price?
$50,000 × 1.15 (overhead) = $57,500; $57,500 × 1.10 (profit) = $63,250. Overhead is applied first to the cost, then profit is applied to the overhead-loaded cost.
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