Martin Realtors_predetermined indirect cost allocation rate

August 15th, 2017

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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 jobs cost, how much should he bid for the Peters Manufacturing job?

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