White Consulting, a real estate consulting firm, specializes in advising companies on potential new plant sites. White Consulting 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 Latoya White prepared the following plan, or budget, for the year:
Direct labor hours (professionals).................................................20,000 hours
Direct labor costs (professionals)................................................... $2,750,000
Office rent........................................................................................ $ 210,000
Support staff salaries........................................................................ $ 920,000
Utilities............................................................................................. $ 320,000
Star Resources is inviting several consultants to bid for work. White estimates that this job will require about 240 direct labor hours.
Requirements
1. Compute White Consulting's (a) hourly direct labor cost rate and (b) indirect cost allocation rate.
2. Compute the predicted cost of the Star Resources job.
3. If White Consulting wants to earn a profit that equals 25% of the job's cost, how much should the company bid for the Star Resources job?