Contractor job costing and overhead, worked out

Direct costs and labor burden

Each direct cost is coded to a job and a cost code, usually following the estimate's breakdown, so the budget and the actuals line up. Labor is the hardest to estimate and the easiest to lose money on, so it is tracked both in dollars and in hours or units installed.

A worker's wage is not the cost of the hour. Labor burden adds the employer's payroll taxes, workers' comp and liability premiums tied to payroll, and benefits. With an invented wage of $30.00 an hour and a burden of 35%:

• Burdened rate = 30.00 x 1.35 = $40.50 an hour
• Check: 35% of 30.00 is 10.50, and 30.00 + 10.50 = 40.50

Estimate and cost labor at the burdened rate, or the burden ends up uncovered.

Overhead and the overhead rate

General overhead is budgeted for the year, then recovered by adding a rate to each job. One common method spreads it over the year's planned direct cost.

Worked example with invented numbers. Annual overhead is budgeted at $420,000, and the company plans $3,500,000 of direct cost for the year.

• Overhead rate = 420,000 / 3,500,000 = 12% of direct cost
• Check: 3,500,000 x 0.12 = 420,000

A job with $180,000 of direct cost then prices like this, with profit at 8% on cost plus overhead:

• Overhead: 180,000 x 0.12 = $21,600
• Cost plus overhead: 180,000 + 21,600 = $201,600
• Profit: 201,600 x 0.08 = $16,128
• Bid: 201,600 + 16,128 = $217,728
• Check: 180,000 x 1.12 x 1.08 = 180,000 x 1.2096 = 217,728

If the company does less volume than planned, the same overhead is spread over fewer dollars of work and the real rate rises. At $2,800,000 of direct cost, the rate is 420,000 / 2,800,000 = 15%, and jobs priced at 12% under-recover. The free overhead rate calculator works this rate and the job bid for your own numbers, on direct cost or direct labor. Break-even revenue is the overhead divided by the gross profit percentage; the contractor financial ratios guide shows where gross profit comes from.

Reading a job cost report

A job cost report shows, for each cost code, the budget, the cost to date, the percent complete, and a projection to completion. Percent complete should come from the work in place, such as units installed, not from the money spent.

Worked example with invented numbers. The labor budget for a concrete wall is $60,000. $36,000 has been spent, and the crew has placed half the wall.

• Earned value of the work in place: 60,000 x 0.50 = $30,000
• Overrun so far: 36,000 - 30,000 = $6,000
• Projected cost at completion if the rate holds: 36,000 / 0.50 = $72,000
• Projected overrun: 72,000 - 60,000 = $12,000
• Check: the second half at the same rate costs another 36,000, and 36,000 + 36,000 = 72,000

Finding that at the halfway point, rather than at closeout, leaves time to change the crew, the method or the sequence, or to document a change order if the cause is a change.

Common mix-ups

• Pricing labor at the bare wage. Use the burdened rate.
• Measuring percent complete by money spent. That hides overruns until the end.
• Treating overhead as fixed per job. It is a company cost; the rate depends on volume.
• Putting job-site supervision in office overhead. Costs caused by one job, such as its superintendent and trailer, are usually job costs (often called general conditions), not company overhead.

On the NASCLA exam

Estimating, cost control and accounting fall under Procurement and Contracting Requirements, 31 of the 115 scored questions. Tab the estimating and accounting topics in the NASCLA Contractors Guide to Business, Law and Project Management, and cost control in Construction Project Management.

Practice it

Turn the bid into a margin in markup vs margin, and see how cost-plus contracts depend on clean job costing in lump sum vs cost-plus vs GMP. On covered federal work, the wage rates come from the wage determination; see Davis-Bacon prevailing wage. Find the sales volume that covers overhead with the free break-even calculator, and check a job on the WIP schedule with the over and under billing calculator, which finds percent complete by cost to cost.

Take the free 10-question check

Start the free 10-question check. It is weighted to the twelve NASCLA subject areas, needs no signup and explains every answer, so you see which area to study first.

The NASCLA Commercial course has a lesson for each of the 12 subject areas that shows which listed reference to open and how to apply it, original practice questions with every answer worked, and four timed practice exams of 115 questions on a 330-minute clock. Your scores come back by subject area, so you know where the next study hour goes. See the course.

Not affiliated with or endorsed by NASCLA or PSI. NASCLA and PSI are named only to identify the exam and its test vendor.

Sources

Show the list

• PSI Candidate Information Bulletin 1458, content outline and reference list, updated 7 Jul 2026. Retrieved 5 Nov 2026.
• NASCLA Commercial Exam, NASCLA. Retrieved 5 Nov 2026.