CSLB Contractor's Law & Business Practice Exam

How much is the total overhead and profit added if both are at 10% each?

1. 15%

2. 20%

3. 22%

4. 10%

The correct answer is: 20%

To determine the total overhead and profit when both are at 10%, it's essential to understand how percentages combine in this context. When calculating overhead and profit percentages, the total markup is not a simple addition of the two percentages due to the way each percentage applies to the base cost. In this scenario, if the base cost is represented as 100%, the overhead, which is 10%, would be added to the base, bringing the total to 110%. Then, the profit is calculated as 10% of this new total (110%). Therefore, the profit amount would be 10% of 110%, which equals 11%. When you add the overhead and profit together, you end up with: - Base Cost: 100% - Overhead: 10% (added to the base, making it 110%) - Profit: 11% (10% of 110) So the total becomes: 100% (base cost) + 10% (overhead) + 11% (profit) = 121%. The total combined overhead and profit amounts to 21% on top of the base cost, which means that the answer represents the percentage increase in cost due to the combined overhead and profit rates.