A Local Engineering Firm Is Bidding on a Design Project

question 106

Essay

A local engineering firm is bidding on a design project for a new client.The total budgeted direct labour costs for the firm are $800,000.The total budgeted indirect costs are $1,200,000.It is estimated that there are 16,000 billable hours in total.Required:
a.What is the budgeted direct labour cost rate?
b.What is the budgeted indirect cost allocation rate assuming direct labour cost is the cost allocation base?
c.What should be the engineering firm bid on the project if the direct labour hours are estimated at 500 hours?

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Definitions:

Straight-Line Method

A method of calculating depreciation or amortization by evenly spreading the cost of an asset over its useful life.

Amortization

The process of spreading the cost of an intangible asset over its useful life.

Premium on Bonds Payable

A situation where bonds are sold above their face value, leading to a credit balance in the premium on bonds payable account.

Journal Entry

A record in accounting that documents a business transaction, indicating the accounts and amounts debited and credited.