Martin 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 indirect cost allocation rate, computed as a percentage of direct labor costs.
At the beginning of 2012, managing partner Andrew Martin prepared the following budget for the year:
Direct labor hours (professionals) . . . . . . . 19,600 hours
Direct labor costs (professionals) . . . . . . . . $ 2,450,000
Office rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370,000
Support staff salaries . . . . . . . . . . . . . . . . . . 1,282,500
Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 430,000
Peters Manufacturing, Inc., is inviting several consultants to bid for work. Andrew Martin estimates that this job will require about 240 direct labor hours.
Requirements
1. Compute Martin Realtors’
(a) Hourly direct labor cost rate and
(b) Indirect cost allocation rate.
2. Compute the predicted cost of the Peters Manufacturing job.
3. If Martin wants to earn a profit that equals 45% of the job’s cost, how much should he bid for the Peters Manufacturing job?