Home Contracting Company builds additions and remodels homes. The firms pricing policy is to estimate the direct
Question:
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?
Step by Step Answer:
Cost Management Measuring Monitoring and Motivating Performance
ISBN: 978-0470769423
2nd edition
Authors: Leslie G. Eldenburg, Susan K. Wolcott