CSLB Contractor's Law & Business Practice Exam

What is the selling price if direct costs are $7,200 with 12% overhead and 10% profit?

1. $8,000.00

2. $9,230.77

3. $9,500.00

4. $10,000.00

The correct answer is: $9,230.77

To find the selling price with specified direct costs, overhead, and profit, you start with the direct costs of $7,200. First, calculate the overhead. The overhead rate is 12% of the direct costs. So, overhead = Direct costs × Overhead percentage = $7,200 × 0.12 = $864. Next, you need to calculate the total costs, which consist of the direct costs plus the overhead. Total costs = Direct costs + Overhead = $7,200 + $864 = $8,064. Now, calculate the profit on the total costs. The profit rate is 10% of the total costs. Profit = Total costs × Profit percentage = $8,064 × 0.10 = $806.40. Finally, add the profit to the total costs to find the selling price. Selling price = Total costs + Profit = $8,064 + $806.40 = $8,870.40. Here’s the critical step regarding why the answer might be identified as $9,230.77 instead. To arrive at $9,230.77, you generally would calculate