Chance 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:
Direct labor hours (professionals) ........................ 13,750 hours
Direct labor costs (professionals) ........................... $ 2,200,000
Office rent ......................................................... 330,000
Support staff salaries ........................................... 1,200,000
Utilities ............................................................. 450,000
Maynard Manufacturing, Inc. is inviting several consultants to bid for work. Andrew Chance wants to submit a bid. He estimates that this job will require about 180 direct labor hours.
Requirements
1. Compute Chance Realtors' (a) hourly direct labor cost rate and (b) predetermined overhead allocation rate.
2. Compute the predicted cost of the Maynard Manufacturing job.
3. If Chance wants to earn a profit that equals 25% of the job's cost, how much should he bid for the Maynard Manufacturing job?