A company had revenues of $500,000, project overhead of $40,000 and company overhead of $75,000. For the current year, percentages stay the same. A project would have $80,000 in direct costs. The company desires a 10% profit on the project bid. What should the bid price be?

A company had revenues of $500,000, project overhead of $40,000 and company overhead of $75,000. For the current year, percentages stay the same. A project would have $80,000 in direct costs. The company desires a 10% profit on the project bid. What should the bid price be?

• A. Between $110,000 and $120,000
• B. Between $100,000 and $110,000
• C. Between $120,000 and $130,000
• D. Between $90,000 and $100,000

Answer: (A)

The question tests how to build a bid when you have multiple overhead pools and you want a specific profit on the final bid. Here, overhead rates come from the current year’s data, and profits are applied as a markup on the bid price. First, determine the overhead rates from the given revenues: - Project overhead rate: 40,000 / 500,000 = 8% - Company overhead rate: 75,000 / 500,000 = 15% Starting with the project’s direct costs of 80,000, apply the project overhead first: - Project overhead on direct costs: 8% of 80,000 = 6,400 - Subtotal after project overhead: 80,000 + 6,400 = 86,400 Next, apply the company overhead to that subtotal: - Company overhead on 86,400: 15% of 86,400 = 12,960 Total estimated cost (direct costs plus both overheads): 80,000 + 6,400 + 12,960 = 99,360 The company wants a 10% profit on the project bid. If profit is 10% of the bid, then Bid = Cost / (1 − 0.10) = 99,360 / 0.9 = 110,400 So the bid should be about 110,400, which falls in the range between 110,000 and 120,000.

The question tests how to build a bid when you have multiple overhead pools and you want a specific profit on the final bid. Here, overhead rates come from the current year’s data, and profits are applied as a markup on the bid price.

First, determine the overhead rates from the given revenues:

• Project overhead rate: 40,000 / 500,000 = 8%

• Company overhead rate: 75,000 / 500,000 = 15%

Starting with the project’s direct costs of 80,000, apply the project overhead first:

• Project overhead on direct costs: 8% of 80,000 = 6,400

• Subtotal after project overhead: 80,000 + 6,400 = 86,400

Next, apply the company overhead to that subtotal:

• Company overhead on 86,400: 15% of 86,400 = 12,960

Total estimated cost (direct costs plus both overheads): 80,000 + 6,400 + 12,960 = 99,360

The company wants a 10% profit on the project bid. If profit is 10% of the bid, then Bid = Cost / (1 − 0.10) = 99,360 / 0.9 = 110,400

So the bid should be about 110,400, which falls in the range between 110,000 and 120,000.