If a contractor has direct costs of $1,000, overhead of 25%, and desires a 5% profit, what should the bid amount be?

To determine the correct bid amount, it's essential to understand how to calculate the total bid based on direct costs, overhead, and profit margin.

First, direct costs of $1,000 are established. The overhead is calculated as a percentage of these direct costs. In this case, with an overhead of 25%, you would compute the overhead amount as follows:

Overhead = Direct Costs x Overhead Percentage

Overhead = $1,000 x 0.25 = $250

Next, you add the overhead to the direct costs to find the total costs before profit:

Total Costs = Direct Costs + Overhead

Total Costs = $1,000 + $250 = $1,250

Now, to incorporate the desired profit of 5%, you will first determine what percentage of the total costs will represent the profit. The profit is calculated based on the total costs, not the direct costs directly, so we can set up the equation for profit as follows:

Profit = Total Costs x Profit Percentage

Profit = $1,250 x 0.05 = $62.50

Now, to find the final bid amount, add the profit to the total costs:

Bid Amount = Total Costs + Profit

Bid Amount = $1