Chapter 3, Problem 3.29AE

Job cost and bid price at a consulting firm (Learning Objective 7)

Robert 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 DeeAnn Robert prepared the following plan, or budget, for the year:

Direct labor hours (professionals)	14,000 hours
Direct labor costs (professionals)	$2,150,000
Office rent	$ 240,000
Support staff salaries	$ 930,000
Utilities	$ 290,000

Chase Resources is inviting several consulting firms to bid for work. Robert estimates that this job will require about 210 direct labor hours.

Requirements

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