Question: Home Contracting Company builds additions and remodels homes. The firms pricing policy is to estimate the direct costs of the job, allocate overhead as a

Home Contracting Company builds additions and remodels homes. The firm’s pricing policy is to estimate the direct costs of the job, allocate overhead as a percentage of the direct costs, and then add 40% to this as profit. For the next year, direct costs are estimated at $8,000,000 and overhead costs are estimated at $11,120,000.

REQUIRED

A. Determine the company’s overhead allocation rate.

B. Calculate the price that will be quoted to a customer for a remodeling job that is expected to have direct materials costs of $25,000 and direct labor costs of $15,000.

C. If actual direct costs next year are $7,200,000, what would be the amount of over-applied or under-applied overhead?

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