91Ó°ÊÓ

Chance 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 2018, managing partner Andrew Chance prepared the following budget for the year:

Direct labor hours (professionals)	13,750 hours
Direct labor cost (professionals)	$2,200,000
Office rent	330,000
Support staff salaries	1,200,000
Utilities	450,000

Maynard Manufacturing, Inc. is inviting several consultants to bid for work. Andrew Chance wants to submit a bid. He estimates that this job will require about 180 direct labor hours.

Requirements

2. Compute the predicted cost of the Maynard Manufacturing job.

Step by step solution

01

Estimated direct labor cost

$\begin{array}{c}\mathrm{Estimateddirectlaborcost}=\mathrm{Estimatedlaborhours}×\mathrm{hourlydirectlaborcostrate}\\ \mathbf{=}\mathbf{180}\text{​}\mathbf{hours}\mathbf{×}\mathbf{\$}\mathbf{160}\mathbf{perhour}\\ =\$28,800\end{array}$

02

Estimated indirect labor cost

$\begin{array}{c}\mathrm{Estimatedindirectlaborcost}=\mathrm{Estimateddirectlaborcost}×\mathrm{Predeterminedoverheadallocationrate}\left(\%\right)\\ =\$28,800×90\%\\ =\$25,920\end{array}$

03

Predicted cost of the Maynard Manufacturing job

$\begin{array}{c}\mathrm{Predictedcost}=\mathrm{Estimateddirectlaborcost}+\mathrm{Estimatedindirectlaborcost}\\ =\$28,800+\$25,920\\ =\$54,720\end{array}$

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