Contractor License Exam
Business Finance and Estimating Practice Questions
55 practice questions with detailed explanations — aligned to the Contractor License Exam.
Master Business Finance and Estimating to boost your score on the Contractor License Exam. Each question below mirrors the style and difficulty of real exam questions, complete with detailed explanations so you understand the why behind every answer. Work through all 55 questions, review any that trip you up, and use the related topics below to round out your preparation.
Q1.What is a contractor's overhead?
A.The direct cost of labor and materials for a specific projectB.Business expenses not directly tied to a specific project — including office rent, insurance, vehicles, and staff salariesC.The profit margin built into a project bidD.Subcontractor fees billed to the project ownerB. Business expenses not directly tied to a specific project — including office rent, insurance, vehicles, and staff salariesExplanation: Overhead includes indirect business costs not allocable to a specific project: home office expenses, insurance premiums, administrative salaries, vehicles, tools, and marketing. Overhead must be covered by all projects through a markup percentage added to direct project costs.
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Q2.If a contractor's direct project costs are $100,000 and the overhead rate is 15%, what should the bid price be to achieve a 10% net profit?
A.$115,000B.$125,000C.$126,437D.$127,500C. $126,437Explanation: Total cost = $100,000 × 1.15 = $115,000. To achieve 10% net profit: Bid = $115,000 ÷ (1 - 0.10) = $115,000 ÷ 0.90 = $127,778. Alternatively: $115,000 × 1.10 = $126,500 (if 10% profit is calculated on cost). Contractor licensing exams test this distinction — know whether profit is on cost or selling price.
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Q3.What is workers' compensation insurance designed to cover?
A.Damage to third-party property caused by the contractor's employeesB.Medical expenses and lost wages for employees injured on the job, regardless of faultC.The contractor's tools and equipment stolen from the job siteD.Liability for construction defects discovered after project completionB. Medical expenses and lost wages for employees injured on the job, regardless of faultExplanation: Workers' compensation (workers' comp) is mandatory insurance covering medical expenses, disability benefits, and lost wages for employees injured during work — regardless of fault. It also protects contractors from employee lawsuits for work-related injuries. Most states require workers' comp for all employees.
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Q4.What does general liability insurance cover for a contractor?
A.Injuries to the contractor's own employees on the job siteB.Third-party bodily injury and property damage caused by the contractor's operationsC.Defects in the contractor's completed workD.The contractor's equipment and vehiclesB. Third-party bodily injury and property damage caused by the contractor's operationsExplanation: Commercial General Liability (CGL) insurance covers third-party bodily injury and property damage caused by the contractor's operations. It does NOT cover employee injuries (workers' comp), the contractor's own property (inland marine), or completed-work defects (may be covered under a completed operations endorsement).
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Q5.What is a contractor's license bond (surety bond)?
A.A bank deposit that earns interest for the contractorB.A three-party financial guarantee protecting the public from contractor default, fraud, or non-complianceC.Insurance protecting the contractor's tools and equipmentD.A government-issued permit to bid on public works projectsB. A three-party financial guarantee protecting the public from contractor default, fraud, or non-complianceExplanation: A contractor's license bond (often called a surety bond) is a three-party agreement: the principal (contractor), the surety (bonding company), and the obligee (state or client). If the contractor fails to meet license obligations, claims can be filed against the bond up to its face value.
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