Chance Consulting, a real estate consulting firm, specializes in advising companies on potential new plant sites. Chance Consulting uses a job cost system with a predetermined indirect cost allocation rate computed as a percentage of expected direct labor costs.
At the beginning of the year, managing partner Sarah Chance prepared the following plan, or budget, for the year:
Direct labor hours (professionals)................................................ 19,000 hours
Direct labor costs (professionals).................................................... $2,650,000
Office rent......................................................................................... $ 260,000
Support staff salaries......................................................................... $ 870,000
Utilities.............................................................................................. $ 340,000
Juda Resources is inviting several consulting fi rms to bid for work. Chance estimates that this job will require about 220 direct labor hours.
Requirements
1. Compute Chance Consulting's (a) hourly direct labor cost rate and (b) indirect cost allocation rate.
2. Compute the predicted cost of the Juda Resources job.
3. If Chance Consulting wants to earn a profit that equals 35% of the job's cost, how much should the company bid for the Juda Resources job?