Florida General Contractor Practice Exam

When estimating job costs, according to the Builder's Guide to Accounting, which item is typically excluded?

1. Labor costs

2. Overhead costs

3. Profit margin

4. Internal administrative expenses

The correct answer is: Internal administrative expenses

In construction job costing, internal administrative expenses are typically excluded from the direct job cost estimates. These expenses encompass costs associated with running the business, such as salaries for office staff, utilities, and administrative supplies that are not directly tied to a specific construction project. When estimating job costs, the focus is primarily on direct costs that can be attributed directly to the project, which include labor costs, overhead costs specifically related to execution, and the anticipated profit margin. Labor costs cover wages for workers directly involved in the project, while overhead costs might include things like materials, subcontractor fees, and equipment rental essential for the project. The profit margin represents the amount the contractor expects to earn from the job after covering direct costs. Including internal administrative expenses in job cost estimates would distort the actual costs of delivering the construction services, making it harder for contractors to assess the true profitability of individual projects. Thus, excluding these expenses allows for a clearer understanding of the direct costs associated with a specific job, leading to more accurate bidding and financial management practices.