CSLB Law & Business ExamBusiness FinancesHard
A contractor estimated a job's labor cost at $18,000, but the actual labor cost recorded through job costing came to $21,600. What is the percentage cost overrun compared to the original estimate?
- A12%
- B16.7%
- C20%
- D24%
Show answer & explanationAnswer & explanation
Correct answer: C. 20%
The cost overrun percentage is calculated as (Actual − Estimate) ÷ Estimate = ($21,600 − $18,000) ÷ $18,000 = $3,600 ÷ $18,000 = 20%. Job costing allows contractors to compare estimated versus actual costs to identify variances and improve future bidding.
Why the other options are wrong
- A. Does not match the correct variance-to-estimate calculation.
- B. This would result from dividing the variance by the actual cost instead of the estimate.
- D. Overstates the overrun percentage beyond the correct calculation.
Job Cost Variance Analysis
Comparing actual job costs to original estimates to measure overruns or savings, expressed as a percentage of the original estimate.
- Formula: (Actual - Estimate) ÷ Estimate x 100
- Used to refine future bids and control costs
- Large variances signal estimating or cost-control problems
Memory trick: Variance is measured against the original estimate, not the actual.