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 2018, managing partner Andrew Chance 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

Requirements:

a. Compute Peters Realtors’ (a) hourly direct labor cost rate and (b) predetermined overhead allocation rate.
b. Compute the predicted cost of the Chance Manufacturing job.
c. If Peters wants to earn a profit that equals 50% of the job’s cost, how much should he bit for the Chance Manufacturing job?

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TomShelby TomShelby · Answer 1 · 2020-02-18T06:43:09+01:00

Answer:

the professional charges $100 dollar per hour

while the overhead is rate is $80 per hour

the bid will be for 67,500 dollars

Explanation:

wee add up the expected overhead cost:

320,000 rent

1,260,000 salaries

420,000 utilities

2,000,000 total

now we divide over the proposed driver (labor hours)

2,000,000 / 25,000 hours = $80

hourly bill: 2,500,000 / 25,000 = $100

the bid should be:

250 x ($100 + $80) = $45,000 cost

now we add the gain

$45,000 x ( 1 + 0.5) = $ 67,500 bid