Financial Analysis for the Small Construction Company

Given Information:

– Working hours available: 3600 h/year
– Fixed costs: €30,000.00/year
– Variable overhead costs: 8% of the value of a working hour
– Profit target: €50,000.00/year
– Construction material cost: €10,000.00
– Cost of a working hour: €27.00/h
– Working hours for the contract: 100 h
– Total work trips: 200 km
– Mileage allowance: €0.70/km
– Remaining annual capacity hours: 3600 – 100 = 3500 h

Calculations:

a) Total Margin and Hourly Margin:

1. Total Margin:

– Total Costs = Fixed Costs + Variable Overhead Costs + (Cost of Working Hours * Working Hours)
– Variable Overhead Costs = 8% of €27.00 = €2.16/h
– Total Costs = €30,000.00 + (0.08 * €27.00 * 3600) + (€27.00 * 100) = €30,000.00 + €7776.00 + €2700.00 = €39,476.00
– Total Margin = Profit Target + Construction Material Cost – Total Costs
– Total Margin = €50,000.00 + €10,000.00 – €39,476.00 = €20,524.00

2. Hourly Margin:

– Hourly Margin = Total Margin / Working Hours
– Hourly Margin = €20,524.00 / 3600 h ≈ €5.70/h

b) Total Price Offer with VAT:

1. Total Price Offer without VAT:

– Total Price Offer without VAT = Total Costs + Total Margin
– Total Price Offer without VAT = €39,476.00 + €20,524.00 = €60,000.00

2. VAT Calculation (24%):

– VAT Amount = 24% of Total Price Offer without VAT
– VAT Amount = 0.24 * €60,000.00 = €14,400.00

3. Total Price Offer with VAT:

– Total Price Offer with VAT = Total Price Offer without VAT + VAT Amount
– Total Price Offer with VAT = €60,000.00 + €14,400.00 = €74,400.00

Results:

a)

– Total Margin: €20,524.00
– Hourly Margin: €5.70/h

b)

– Total Price Offer with VAT: €74,400.00

Conclusion:

The small construction company’s total margin is calculated to be €20,524.00, with an hourly margin of approximately €5.70/hour. The total price offer for the construction contract, including VAT at 24%, amounts to €74,400.00 based on the hourly margin principle. These calculations provide valuable insights into the company’s financial performance and pricing strategy for the construction contract.