Whang Construction Company is a general contractor that specializes in custom residential housing. Each job requires a bid that includes Whang’s direct costs and subcontractor costs as well as an amount referred to as “overhead and profit.” Whang’s bidding policy is to estimate the costs of direct materials, direct labor, and subcontractors’ costs. These are totaled, and a markup is applied to cover overhead and profit. In the coming year, the company believes it will be the successful bidder on 10 jobs with the following total revenues and costs:

Required:

1. Given the preceding information, what is the markup percentage on total direct costs?
2. Suppose Whang is asked to bid on a job with estimated direct costs of $325,000. What is the bid? If the customer complains that the profit seems pretty high, how might Whang counter that accusation?
3. Briefly explain how Whang Construction’s accountant might utilize data analytics to help decide on the markup percentage to use in setting prices. 

Exhibits 2.5

Exhibits 2.6

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Revenue Direct materials Direct labor Subcontractors Overhead and profit $1,645,000 1,480,000 1,250,000 $4,900,000 4,375,000 $ 525,000