MHIC NASCLA Contractors Practice Exam

What constitutes company overhead?

1. Mobile labor costs

2. Project material expenses

3. Legal fees and office costs

4. Contingency allocations

The correct answer is: Legal fees and office costs

Company overhead refers to the ongoing expenses that are not directly tied to the production of goods or services but are necessary for the overall operation of a business. This includes costs related to maintaining the company's infrastructure, such as rent, utilities, salaries of administrative staff, insurance, and legal fees. Legal fees and office costs clearly fall within this category as they represent the general operating costs required to keep a business running independently of any specific project. These expenses contribute to the overall financial health of the company and are incurred regardless of the level of project activity. In contrast, mobile labor costs and project material expenses are directly related to specific jobs and are variable depending on project requirements. Contingency allocations can be part of project budgets but are not considered overhead since they are set aside for unexpected costs directly tied to specific projects. Therefore, the option that accurately defines what constitutes company overhead is related to legal fees and office costs.