Granite Construction Incorporated is a major construction firm whose projects includes roads, highways, bridges, dams, tunnels, mass transit facilities, and airports. Suppose Granite wants to bid on a project to construct a bridge in Nevada. Estimators have projected the expected direct material cost to be $55 million and the direct labor cost (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. What item would most likely be included in direct materials?

2. Calculate the estimate direct cost, the indirect cost, and the total cost for the project.

3. What should Granite Construction bid for the project?

4. Why does Granite Construction include both direct and indirect cost when calculating the markup?