Greg Pino, a building contractor, constructs houses in tracts, often building as many as 20 homes simultaneously. He has budgeted costs for an expected number of houses in 2007 as follows:

The job construction overhead includes approximately $600,000 of fixed costs, such as the salaries of supervisors and amortization on equipment. The selling and administrative costs include $300,000 of variable costs, such as sales commissions and bonuses that depend fundamentally on overall profitability.
Pino wants an operating income of $1.5 million for 2007.

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Direct materials Direct labour Job construction overhead Cost of jobs Selling and administrative costs Total costs $3,500,000 1,000,000 1,500,000 $6,000,000 1,500,000 $7,500,000