CSLB C-33 Painting & DecoratingPlanning and EstimatingHard
A painting contractor is bidding on a new commercial construction project. The project specifications include a 'cash allowance' for the final color selection, to be chosen by the owner at a later date. The allowance is $5,000 for materials. The contractor's overhead rate is 15% and profit margin is 10% on costs. How should the contractor calculate the total amount to include in the bid for this allowance?
- A$5,000.00
- B$6,325.00
- C$5,750.00
- D$5,500.00
Show answer & explanationAnswer & explanation
Correct answer: B. $6,325.00
The allowance ($5,000) is treated as a direct cost. First, add overhead: $5,000 * 1.15 = $5,750. Then, add profit to this new subtotal: $5,750 * 1.10 = $6,325.00. This ensures the contractor recovers administrative costs and earns profit on managing the allowance.
Why the other options are wrong
- A. This only includes the direct material cost, ignoring overhead and profit.
- C. This includes overhead but neglects to apply profit (5,000 * 1.15 = 5,750).
- D. This only adds profit to the initial allowance, ignoring overhead (5,000 * 1.10 = 5,500).
Allowance with O&P Calculation
The process of adding a contractor's standard overhead and profit percentages to a specified allowance amount to determine its total inclusion in the bid.
- Allowance is treated as a direct cost.
- Overhead is added first to the allowance.
- Profit is then added to the subtotal (allowance + overhead).
Memory trick: Allowance is a 'cost', then add O&P in layers.