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University of Palestine Faculty of Eng. Application & Urban Planning Cost Analysis & Management. Construction Management Department HW1 First Semester 2009/2010 St. Na: Mohammed said khader St. ID :420050051 Submit your work through UPINAR Any hard copy or direct submission to the lecturer will not be accepted. The font size of your writing should be 14 Dead line for submission 31.10.09 Answer the followings: 1. Differentiate between the site overhead and office overhead. Site Overhead Contractor project costs are usually grouped either as “direct costs” or “indirect costs.” Direct costs include labor, material and equipment installed as part of the work, and construction tools and equipment, all of which are charged to specific construction tasks. Indirect costs are those that cannot be identified with a specific construction activity but support the project as a whole, as, for example, costs of the project site management staff and the site office. Indirect costs are usually called “site or project overhead.” They are also called “general conditions,” since the site management usually performs tasks required by the general conditions of the contract. Some indirect costs are one-time costs, e.g. setting up the job trailer, and others are time-related, e.g. the monthly rental cost for the job trailer or salaries for the project site management. Office Overhead Home office overhead represents the costs of the activities of the Contractor’s home, or corporate, office necessary to run the business and to support the projects in the field. These overhead activities include management, accounting, sales and marketing, rent, utilities, insurance, and so forth. Usually, the Contractor’s accounting system does not distribute these costs directly to specific projects. For example, an accounting clerk may work on several projects during a day but on the time card enters all 8 University of Palestine Faculty of Eng. Application & Urban Planning Cost Analysis & Management. Construction Management Department HW1 First Semester 2009/2010 hours on one line item called “accounting.” It is also difficult to distribute home office costs to specific jobs. How does the salesperson distribute time to different active projects when his or her efforts do not support any ongoing projects? Therefore, home office overhead costs are usually posted to accounts that are not project related, and lumped together, they are called the home office overhead “pool”. The question remains: What portion of the home office overhead pool is used to support a specific job? The pool may be apportioned or allocated among the various jobs using some basis, e.g. based on the percent of total revenue contributed by each project or on the percent of total labor used by each project. 2. Explain how indirect office overhead is included in contract price. When preparing a proposal budget, always start out assuming that full indirect costs will be applied. In the event that indirect costs may be reduced or waived by exception, you might be able to increase your programmatic budget by rebudgeting from indirect to direct costs. However, if you present a sponsor with a budget that does not include indirect costs, and it turns out that indirects are applicable, you will probably end up having to reduce funds budgeted for program activities in order to cover indirect costs. If you think an award might be subject to lower-than-standard overhead, contact the DANR Office of Contracts and Grants. We can check to determine if the University has already granted an exception for an individual sponsor’s program or if a request to waive overhead in the particular case will be successful. University of Palestine Faculty of Eng. Application & Urban Planning Cost Analysis & Management. Construction Management Department HW1 First Semester 2009/2010 3. Why contingencies is added to the cost of construction project. Engineers can estimate project costs using different methods. Estimates can be developed based on project parameters and major cost elements. It may include analysis of historical bid data, actual cost or a combination of methods. Special care must be taken to make a complete capital cost estimate. A common error in the economic analysis and budgeting is the underestimation of project construction and related costs. Contingency funding is a fiscal planning tool for managing the risk of cost escalations and covering potential cost estimate shortfalls. Inclusion of a contingency amount in the cost estimate will minimize the impact of cost increases inherent in an overly optimistic estimate and provide for an earlier discussion of how potential circumstances can be addressed. 4. What is the difference between the capital cost and the construction cost. Capital costs are costs incurred on the purchase of land, buildings, construction and equipment to be used in the production of goods or the rendering of services. In other words, the total cost needed to bring a project to a commercially operable status. However, capital costs are not limited to the initial construction of a factory or other business. For example, the purchase of a new machine that will increase production and last for years is a capital cost. Capital costs do not include labor costs except for the labor used for construction. Unlike operating costs, capital costs are one-time expenses, although payment may be spread out over many years in financial reports and tax returns. Capital costs are fixed and are therefore independent of the level of output. construction cost Expense incurred by a contractor for labor, material, equipment, financing, services, utilities, etc., plus overheads and contractor's profit. Costs such as that of land, architectural design, consultant and engineer's fee are not construction costs.
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