Universidad Católica Boliviana "San Pablo"

1 ABSTRACT The construction market is a highly competitive marketplace, which grows up very fast in the last 3 years. For a company to survive in this market, it must have a close eye on costs and have accurate cost estimates. In the current method of developing cost estimates, the company determines the direct material and labor costs and adds a markup percentage to determine the total cost proposal. The gross margin is used to cover the entire overhead and what remains is profit. The markup percentage is used regardless of the resources used, which indicates a lack of cost control. In contrast, a better way of preparing a cost estimate may be the use of Activity Based Costing (ABC) to allocate the cost of branch resources accurately (relative to the size of the construction project). This proposal will examine the possibility of using ABC to develop more accurate cost estimates in the construction company Martinez Paz S.A. 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. In an effort to develop a more accurate cost estimate for a construction project, Activity Based Costing (ABC) may be a viable solution. The ABC system helps in the reduction of the ambiguity caused by the branch overhead costs that need to be covered by a markup factor. In this study, the ABC system has established a link between the size of a project, considering number of employees and equipment used, and the indirect costs through Cost Inductors.