Concept explainers
Granite Construction Incorporated is a major construction firm whose projects include roads, highways, bridges, dams, tunnels, mass transit facilities, and airports. Suppose Granite Construction wants to bid on a project to construct a bridge in Nevada. Estimators have projected the expected direct materials costs to be $55 million and the direct labor costs (including design and construction) to be $30 million. The company uses a predetermined overhead allocation rate of 50% of direct labor costs and a markup of 20% of total costs.
Requirements
- 1. What items would most likely be included in direct materials?
- 2. Calculate the estimated direct costs, the indirect costs, and the total costs for the project.
- 3. What amount should Granite Construction bid for the project?
- 4. Why does Granite Construction include both direct and indirect costs when calculating the markup?
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