An abstract of estimated cost is prepared after obtaining the cost of each individual item of work and then adding them all together. This estimated cost is increased by 5% to account for any unforeseen expenses, which are referred to as:
- AcontingenciesCorrect
- Bwork charged establishment
- Coverhead charges
- Ddepartmental charges
Solution
Concept
Contingencies are a small percentage (about 3-5%) added to the estimated cost to cover unforeseen expenses.
Formula
Total cost = Estimated cost + Contingencies (about 3-5%) + Work charged establishment (about 1.5-2%)
Step-by-step solution
1. The abstract of estimate gives the total cost of all items. 2. Some expenses cannot be predicted at the estimate stage. 3. To cover these, a small percentage (3-5%) is added. 4. This amount is called contingencies. 5. Answer is (A).
Explanation
After finding the total cost of all items in the abstract of estimate, a small extra amount is added for unforeseen or miscellaneous expenses. This extra amount is called contingencies. It is usually 3 to 5% of the estimated cost.
Why the other options are wrong
B: Work charged establishment is the cost of extra staff (like chowkidar, work munshi) employed for the work. C: Overhead charges are indirect costs such as office expenses and contractor's establishment. D: Departmental charges are charges for the department's establishment and supervision, not unforeseen expenses.
Shortcut
Unforeseen expenses means contingencies.
Common mistake
Mixing up contingencies (unforeseen cost) with work charged establishment (extra staff cost).
Correct answer: A) contingencies