Question
Ahmed constructs buildings in Abu Dhabi. Ahmed was approached recently by a customer regarding a potential project, and he submitted a bid of $967,600, derived
Ahmed constructs buildings in Abu Dhabi. Ahmed was approached recently by a customer regarding a potential project, and he submitted a bid of $967,600, derived as follows: (5 Marks)
Land | $160,000 |
Raw materials | 200,000 |
Labor costs | 240,000 |
| $600,000 |
Construction overhead25% of direct costs | 150,000 |
Allocated corporate overhead | 70,000 |
Total cost | $820,000 |
Ahmed adds an 18% profit margin to all jobs, computed on the basis of total cost. In this client's case the profit margin amounted to $147,600 ($820,000 x 18%), producing a bid price of $967,600. Assume that 70% of construction overhead is fixed.If Ahmed has more business than he can handle, how much should he be willing to accept for the home? Why?
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