Sayres Consulting, a real estate consulting firm, specializes in advising companies on potential new plant sites. The firm uses a job costing system with a predetermined indirect cost allocation rate computed as a percentage of direct labor costs. At the beginning of the year, managing partner Dana Sayres prepared the following plan, or budget, for the year:
Direct labor hours (professionals) ...................................................... 15,000 hours
Direct labor costs (professionals) ........................................................ $ 2,250,000
Office rent ............................................................................................... $ 250,000
Support staff salaries .............................................................................. $ 940,000
Utilities .................................................................................................... $ 310,000
Granite Resources is inviting several consultants to bid for work. Sayres estimates that this job will require about 250 direct labor hours.
Requirements
1. Compute Sayres Consulting's (a) hourly direct labor cost rate and (b) indirect cost allocation rate.
2. Compute the predicted cost of the Granite Resources job.
3. If Sayres Consulting wants to earn a profit that equals 30% of the job's cost, how much should the company bid for the Granite Resources job?