White Consulting, a real estate consulting firm, specializes in advising companies on potential new plant sites. The firm uses a job cost system with a predetermined indirect cost allocation rate computed as a percentage of expected direct labor costs. At the beginning of the year, managing partner Kenna White prepared the following plan, or budget, for the year: Direct labor hours (professionals). . . .16,000 hoursDirect labor costs (professionals). . . .$2,350,000Office rent. . . . . . . . . . . . . . . . . . . . . .$220,000Support staff salaries. . . . . . . . . . . . .$940,000Utilities. . . . . . . . . . . . . . . . . . . . . . . .$350,000 Tibbs Resources is inviting several consulting firms to bid for work. White estimates that this job will require about200 direct labor hours. Requirements:1. Compute WhiteConsulting's (a) hourly direct labor cost rate and (b) indirect cost allocation rate.2. Compute the predicted cost of theTibbsResources job. 3. fWhiteConsulting wants to earn a profit that equals25%of the job's cost, how much should the company bid for theTibbsResources job?

Answered: White Consulting, a real estate…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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White Consulting, a real estate consulting firm, specializes in advising companies on potential new plant sites. The firm uses a job cost system with a predetermined indirect cost allocation rate computed as a percentage of expected direct labor costs. At the beginning of the year, managing partner Kenna White prepared the following plan, or budget, for the year:

Direct labor hours (professionals). . . .	16,000 hours
Direct labor costs (professionals). . . .	$2,350,000
Office rent. . . . . . . . . . . . . . . . . . . . . .	$220,000
Support staff salaries. . . . . . . . . . . . .	$940,000
Utilities. . . . . . . . . . . . . . . . . . . . . . . .	$350,000

Tibbs Resources is inviting several consulting firms to bid for work. White estimates that this job will require about

200 direct labor hours.

Requirements:

1. Compute WhiteConsulting's (a) hourly direct labor cost rate and (b) indirect cost allocation rate.
2. Compute the predicted cost of the Tibbs Resources job.
3. f White Consulting wants to earn a profit that equals 25% of the job's cost, how much should the company bid for the Tibbs Resources job?

Expert Solution

Step 1: Introduce to Predetermined Overhead Rate

Predetermined Overhead Rate :— It is the rate used to allocate manufacturing overhead cost to cost object under traditional costing method. It is calculated by dividing total estimated manufacturing overhead cost by estimated usage of cost allocation base.

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