Florida General Contractor Practice Exam

If a contractor's bid for a job is $20,000 and their break-even point includes direct costs of 60%, selling expenses of 22.5%, and fixed overhead of $4,000, how much additional amount should be added to the bid to reach the break-even point?

1. $7,500

2. $9,000

3. $12,000

4. $8,500

The correct answer is: $7,500

To determine the additional amount that needs to be added to the bid to reach the break-even point, we first need to calculate the total costs associated with the job. The bid amount is $20,000, and the components of the break-even point include direct costs, selling expenses, and fixed overhead. 1. **Calculate Direct Costs**: Since direct costs make up 60% of the bid, we find that: \[ \text{Direct Costs} = 60\% \times 20,000 = 12,000 \] 2. **Calculate Selling Expenses**: Selling expenses account for 22.5% of the bid, leading to: \[ \text{Selling Expenses} = 22.5\% \times 20,000 = 4,500 \] 3. **Add Fixed Overhead**: The fixed overhead is given as $4,000. Now, we can sum these costs to find the total costs: \[ \text{Total Costs} = \text{Direct Costs} + \text{Selling Expenses} + \text{Fixed Overhead} = 12,000 + 4,500 + 4,000 =