Shawn Is a General Contractor Who Has Decided to Expand

Essay

Shawn is a general contractor who has decided to expand his offerings to include living room remodels. In his other projects, Shawn would estimate jobs using a flat rate of $12.50 per square foot of flooring to be replaced. He now believes that the flat rate of billing creates an opportunity to underbid. At the suggestion of his accountant, Shawn would like to explore the use of Activity-Based Costing (ABC). An upcoming bid for a client would include the following:
Shawn would like to add a 25% markup to the initial cost to arrive at a final bid price. Using ABC, what is the difference in profit compared to keeping the flat billing rate?