Question

Markup on Cost, Cost-Based Pricing

Arthur Quillen Construction Company is a general contractor that specializes in custom residential housing. Each job requires a bid that includes Quillen’s direct costs and subcontractor costs as well as an amount referred to as “overhead and profit.” Quillen’s bidding policy is to estimate the costs of direct materials, direct labor, and subcontractors’ costs. These are totaled, and a markup is applied to cover overhead and profit. In the coming year, the company believes it will be the successful bidder on 10 jobs with the following total revenues and costs:

Revenue			$8,481,780
Direct materials	$2,202,000
Direct labor	1,723,000
Subcontractors	3,581,000		7,506,000
Overhead and profit			$975,780

Required:

1. Given the preceding information, what is the markup percentage on total direct costs?
%

2. Suppose Quillen is asked to bid on a job with estimated direct costs of $572,000. What is the bid?
$

Answer 1

1
Overhead and profit	975780
Divide by Total direct costs	7506000
Markup percentage	13%
2
Estimated direct costs	572000
Add: Markup	74360	=572000*13%
Bid	646360