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FACULTY OF ENGINEERING

Department of Civil Engineering


Master of Structural Engineering and
Construction

CONSTRUCTION BUSINESS MANAGEMENT


(ECV 5703)

Chapter 10: Setting Profit Margins for Bidding


Assignment Number (5)

Prepared For:
PROF. MADYA .IR. SALIHUDIN BIN HJ HASSIN

Prepared By:
MAGED MOHAMMED AHMMED

Submission Date: 19 April 2016

GS38690

Faculty of Engineering
Department of Civil Engineering
Master of Structural Engineering and
Construction

Problem 10:
Determine the break-even volume of work for a company with a fixed overhead of $72,000 and a
contribution margin ratio of 14.0%.

Using following equation and setting the profit to zero


Profit CM Ration (Revenues) - Fixed overhead

Profit CM Ration (Revenues) - Fixed overhead 0 CM Ration (Revenues) - Fixed overhead


Revenues

Fixed overhead $72,000

$ 514,286
CM
0.14

The company in given problem need to generate $ 514,286 in revenues to cover its fixed overhead.
If it generates less than $ $ 514,286 the company will not cover the fixed overhead and will lose
money on construction operations. For the revenues in excess of $ 514,286 the entire contribution
margin will be profit from operations

Problem 12:
Determine the break-even volume of work for a company with a fixed overhead of $63,000, a
contribution margin ratio of 11.0%, and a required level of profit of $60,000.

Using following equation and setting the profit to $60,000


Profit CM Ration (Revenues) - Fixed overhead

Profit CM Ration (Revenues) - Fixed overhead


Revenues

Profit Fixed overhead $60,000 $63,000

$ 1,118,182
CM
0.11

The company in Problem 12 will need to generate $1,118,182 in revenues to cover its fixed
overhead and make $60,000 in profit. If it generates less than $1,118,182 it will not meet its profit
requirements. If the company generates more than $1,118,182 it will exceed its profit
requirements.

Construction Business Management(ECV5703)

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Faculty of Engineering
Department of Civil Engineering
Master of Structural Engineering and
Construction

Problem 14
A construction company has a fixed overhead of $ 60,000 and a variable overhead of 2.5 % of
revenue. Historically, construction costs have been 88 % of revenue what is the maximum amount
of sales that are required to break -even.

By using the following equation to determine contribution margin ratio:


CM Ratio 1 -

Construction Variable Overhead

Revenues
Revenues

CM Ratio 1 - 0.88 0.025 0.095 9.5 %

By using equation and setting the profit equal to zero. We get the following:
Profit CM Ration (Revenues) - Fixed overhead

Profit CM Ration (Revenues) - Fixed overhead 0 CM Ration (Revenues) - Fixed overhead


Revenues

Fixed overhead $60,000

$ 631,579
CM
0.095

Problem 18:Determine the breakeven contribution margin ratio for accompany with a fixed overhead of $
92,000 revenues of $ 450,000, and a required level of profit of $ 45,000.

By using following equation and setting the profit equal to $ 45,000. We get the following:
Profit CM Ration (Revenues) - Fixed overhead

Profit CM Ratio (Revenues) - Fixed overhead


CM Ratio

Profit Fixed overhead $45,000 $92,000

0.304 or 30.4 %
Revenues
$ 450,000

The company described in problem 18 will need to maintain a contribution margin ratio of 30.4%
in order to meet profit requirements. If the contribution margin ratio is less than 30.4% the
company will not meet its profit requirement. If the contribution margin ratio is greater than 30.4%
the company will exceed its profit requirement.

Construction Business Management(ECV5703)

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Faculty of Engineering
Department of Civil Engineering
Master of Structural Engineering and
Construction

Problem 22:Your construction company recently bid against ABC Construction Company. Your construction
costs were $ 1,125,572 and you added a 6 % profit and overhead markup for a total bid of
$1,193,106 .ABCs bid was $1,179,999 .what profit and overhead markup would you need to add
to your construction costs to get ABCs bid.

By using the following equation the profit and overhead determine as following:
P and O Markup

P and O Markup

Bid
1
Construction Cost

Bid
$1,179,999
1
1 0.048 or 4.84%
Construction Cost
$ 1,125,572

Construction Business Management(ECV5703)

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