CSLB Contractor's Law & Business Practice Exam

If direct costs are $37,000, how much is the selling price after adding overhead and profit?

1. $42,500

2. $44,578.31

3. $46,000

4. $48,750

The correct answer is: $44,578.31

To determine the selling price after adding overhead and profit to the direct costs, it is important to understand how to calculate the total price that includes these additional factors. In construction and contracting, direct costs are the actual costs incurred for labor, materials, and direct project expenses. To arrive at a selling price, contractors typically add a markup, which consists of overhead (indirect costs related to the project that are not directly traceable to a specific project) and profit margin. For this particular scenario, it's implied that overhead and profit are calculated based on the direct costs. The calculations often involve a markup percentage applied to the direct costs, and this percentage can vary widely depending on the business model. If direct costs are calculated to be $37,000, and we assume the appropriate application of calculated overhead and profit results in a selling price of approximately $44,578.31, this means that the total additional costs (overhead plus profit) added to the direct costs amounts to roughly $7,578.31. The specific method of calculating overhead and profit can vary, including percentages or formulas that are congruent with industry standards. $44,578.31 represents a practical figure that reflects a reasonable mark-up for many contracting scenarios,