For example, the current method of adding a percentage markup to cover overhead and profit on top of the direct material and labor may not be an accurate method to allocate the branch resources used by that project. Since estimators often misallocate overhead project costs, a project might look like it has a large gross margin, when in fact it does not, and another project might look like it has a small gross margin, when in fact it has a larger one. This phenomenon is called “cross subsidization” of costs between the two projects. In an effort to develop a more accurate cost estimate for a construction project, Activity Based Costing (ABC) may be a viable solution.
Again the study this abstract is for found that: —“the current method of adding a percentage markup to cover overhead and profit on top of the direct material and labor may not be an accurate method to allocate the branch resources used by that project.”—
