CSLB C-33 Painting & DecoratingPlanning and EstimatingHard
A painting contractor is performing a final review of a bid for a large commercial project. The total estimated direct costs (materials, labor, equipment, subcontractors) are $250,000. The contractor's calculated overhead rate is 20% of direct costs, and they aim for a 10% net profit margin on the total bid price. What should be the contractor's final bid price?
- A$300,000
- B$275,000
- C$343,750
- D$333,333
Show answer & explanationAnswer & explanation
Correct answer: D. $333,333
First, calculate total costs including overhead: Direct Costs ($250,000) + Overhead (20% of $250,000 = $50,000) = $300,000. Next, to achieve a 10% profit margin on the *total bid price*, the total costs ($300,000) must represent 90% (100% - 10% profit) of the final bid. So, Final Bid = Total Costs / (1 - Profit Margin) = $300,000 / (1 - 0.10) = $300,000 / 0.90 = $333,333.33.
Why the other options are wrong
- A. This only adds the overhead to direct costs, without including the profit margin.
- B. This only adds 10% profit to direct costs, not including overhead.
- C. This would be the result if profit was calculated as 10% of total costs ($300,000 * 1.10 = $330,000) or if other calculation errors were made.
Profit Margin Calculation (on Bid Price)
Determining the final bid price by adding direct costs, overhead, and then calculating profit as a percentage of the *selling price*, rather than just a markup on costs.
- Profit margin is a percentage of the total revenue (bid price).
- Requires dividing total costs by (1 - desired profit margin percentage).
- Ensures the desired profit is achieved from the final payment received.
Memory trick: Costs Covered, Then Calculate for Cash.