Chapter 17, Problem 1TIATC

Granite Construction Incorporated is a major construction firm whose projects include roads, highways, bridges, dams, tunnels, mass transit facilities, and airports. Suppose Granite Construction wants to bid on a project to construct a bridge in Nevada. Estimators have projected the expected direct materials costs to be $55 million and the direct labor costs (including design and construction) to be $30 million. The company uses a predetermined overhead allocation rate of 50% of direct labor costs and a markup of 20% of total costs.

Requirements

1. 1. What items would most likely be included in direct materials?
2. 2. Calculate the estimated direct costs, the indirect costs, and the total costs for the project.
3. 3. What amount should Granite Construction bid for the project?
4. 4. Why does Granite Construction include both direct and indirect costs when calculating the markup?