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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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