Peter 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 overhead allocation rate, computed as a percentage of direct labor costs. At the beginning of 2016, managing partner Andrew Peters Prepared the following budget for the year:
Chance Manufacturing, Inc. is inviting several consultants to bid for work. Andrew Peters wants to submit a bid. He estimates that this job will require about 250 direct labor hours.
Direct labor hours (professionals) 25,000 hours
Direct labor costs (professionals) $2,500,000
Office rent 320,000
Support staff salaries 1,260,000
Utilities 420,000
Requirement 1.
Compute Realtors'
(a) hourly direct labor cost rate and
(b) predetermined overhead allocation rate. Begin with (a) hourly direct labor cost rate. Direct labor / = cost rate / = per hour Now compute Realtors' (b) predetermined overhead allocation rate. Predetermined overhead / = allocation rate / = %
Requirement 2. Compute the predicted cost of the Manufacturing job. Root Realtors Estimated Cost of the White Manufacturing Job hrs. x = + % x = Total predicted cost
Requirement 3. If wants to earn a profit that equals % of the job's cost, how much should bid for the Manufacturing job? Add: Required service revenue

Predetermined indirect cost allocation rate = = Total Estimated indirect cost / Total estimated direct labor cost = 2,000,000 / 2,500,000 = 80% of Direct Cost

2. Direct Labor $25,000 (250 * 100)

Indirect Cost $20,000 (25,000 * 80%)

Total Predicted cost $45,000

3. Predicted cost $45,000

Desired Profit $22,500 (50% of $45,000)

Required Service revenue $67,500