Question

Peter Realtors, a real estate consulting firm, specializes in advising companies on potential new plant sites. The company uses a job order costing system with a predetermined overhead allocation rate, computed as a percentage of direct labor costs. At the beginning of 2016, managing partner Andrew Peters Prepared the following budget for the year:
Chance Manufacturing, Inc. is inviting several consultants to bid for work. Andrew Peters wants to submit a bid. He estimates that this job will require about 250 direct labor hours.
Direct labor hours (professionals) 25,000 hours
Direct labor costs (professionals) $2,500,000
Office rent 320,000
Support staff salaries 1,260,000
Utilities 420,000
Requirement 1.
Compute ​Realtors'
(a) hourly direct labor cost rate and​
(b) predetermined overhead allocation rate. Begin with​ (a) hourly direct labor cost rate. Direct labor / = cost rate / = per hour Now compute ​Realtors' (b) predetermined overhead allocation rate. Predetermined overhead / = allocation rate / = %
Requirement 2. Compute the predicted cost of the Manufacturing job. Root Realtors Estimated Cost of the White Manufacturing Job hrs. x = + % x = Total predicted cost
Requirement 3. If wants to earn a profit that equals ​% of the​ job's cost, how much should bid for the Manufacturing​ job? Add: Required service revenue

Answer 1

Answer:

1. Hourly Direct Labor Cost rate = Direct Labor cost / Direct Labor hours

Hourly Direct Labor Cost rate = 2,500,000 / 25,000

Hourly Direct Labor Cost rate = $100 per hour

Computation of Indirect cost

Office Rent                     $320,000

Support staff salaries    $1,260,000

Utilities                           $420,000

Total Indirect Costs      $2,000,000

Predetermined indirect cost allocation rate = = Total Estimated indirect cost / Total estimated direct labor cost  = 2,000,000 / 2,500,000  = 80% of Direct Cost

2.  Direct Labor            $25,000  (250 * 100)

Indirect Cost               $20,000  (25,000 * 80%)

Total Predicted cost   $45,000

3. Predicted cost                   $45,000

Desired Profit                       $22,500 (50% of $45,000)

Required Service revenue  $67,500