MHIC NASCLA Contractors Practice Exam

What type of costs does 'company overhead' involve?

1. Costs associated with subcontracting

2. Costs to facilitate project completion

3. Administrative and operational costs

4. Variable costs of materials

The correct answer is: Administrative and operational costs

Company overhead encompasses the administrative and operational expenses necessary for running a business, regardless of the projects being undertaken. This includes costs related to management salaries, office rent, utilities, accounting services, office supplies, and other ongoing overhead that supports daily operations but isn’t directly tied to any specific project. Such expenses are incurred even when no projects are underway, illustrating the importance of these costs in maintaining the company's functionality and stability. The other options, while relevant to construction and project management, do not align with the definition of overhead. Subcontracting costs directly relate to hired third-party services, project completion costs are directly attributable to specific projects, and variable costs of materials fluctuate with production volume and are thus different from the stable nature of overhead costs.