Chapter 11: Profit Center Analysis
Learning Objectives
At the completion of this chapter the student should be able to:
• Explain the sources of profit within a construction company.
Instructional Hints
• Help the students understand that profitability should not only be measured against
Activities
• Read and discuss the article Valued Customers, A “New” Strategy for Today’s
Instruction Resources
• The figures and tables from this chapter in electronic format and PowerPoint slides can be
found at the instructor’s website.
Solutions to the Textbook Problems
1. The estimator may increase the profit on a job by identifying times when a higher profit and
2. The project management team may increase the profit on a job by controlling material waste
3. (1) Percentage of revenues, (2) labor costs, (3) material costs, (4) estimated usage,
(5) incremental overhead cost, and (6) arbitrary assignment. Allocating based upon material
4. Without the necessary authority and resources, the profit center managers are just carrying
5. To make the comparison between in-house crews and market rates easy. All framing costs
for the in-house crew that a subcontractor would normally cover would be billed to 06110
6. They may be evaluated based on the gross profit margin (or profit and overhead markup), the
return on the cash invested, or the amount of management’s time it takes to run a job. A
7. To focus their time and energy on servicing quadrant I customers, which produce a high
9. The profit earned by the excavation crew is the cost savings for the demolition and grubbing
and the grading and excavation or a savings of $438 (–$1,438 + $1,000). The profit earned
10. The profit earned by the excavation crew is the cost savings for grading and excavation,
sanitary sewer, water line, and storm drain or a savings of $1,435
11. First, look at the gross profit margin. The gross profit and revenue for the office remodel
profit center is as follows:
Gross Profit = $22,272 + $13,854 + $10,120 = $46,246
The sum of the gross profit, the average monthly investment, and the return on cash
investment in the new construction profit center projects is as follows:
The average monthly profit generated by a new construction project is as follows:
12. First, look at the gross profit margin. The gross profit and revenue for the subdivision profit
center is as follows:
Gross Profit = $73,334 + $46,954 + $17,079 = $137,367
Revenue = $500,000 + $375,000 + $177,000 = $1,052,000
The gross profit margin is calculated using Eq. (6-17) as follows:
Gross Profit Margin = $137,367/$1,052,000 = 0.1306 or 13.06%
