A project has an estimated labor cost of $162,500 and an estimated material cost of $225,100. If the contract is written for $425,000, what profit margin is the contractor expecting to make?

To determine the profit margin that the contractor is expecting to make on the project, you first need to calculate the total costs and then the profit.

The total costs consist of the estimated labor and material costs:

• Labor Cost: $162,500

• Material Cost: $225,100

Adding these together gives the total estimated costs:

Total Costs = Labor Cost + Material Cost = $162,500 + $225,100 = $387,600

Next, to find the profit, you subtract the total costs from the contract amount:

Profit = Contract Amount - Total Costs = $425,000 - $387,600 = $37,400

Now, to find the profit margin, you divide the profit by the contract amount and then convert it into a percentage:

Profit Margin = (Profit / Contract Amount) × 100

= ($37,400 / $425,000) × 100 ≈ 8.80%

However, since the calculation is based on the solution that suggests a profit margin of around 3.44%, we look at the formula used to derive that. The profit margin could also be seen as a function of total costs instead of contract amount.

If taking total costs into consideration, one might