Question

Exercise 5-29 Methods of Estimating Costs: Engineering Estimates (LO 5-2) Twain Services offers leadership training for local companies. It employs three levels of seminar leaders, based on experience, education, and management level being targeted: guru, mentor, and helper. When Twain bids on requests for seminars, it estimates the costs using a set of standardized billing rates. It then adds an estimate for travel, supplies, and so on (referred to as out-of-pocket costs). Next it applies a percentage to the total of seminar leader cost and out-of- pocket cost for general and administrative (G&A) expense. The estimates for each of these elements are shown below: Guru cost per hour) Mentar cast per haur) Helger cost per hour) G&A factor $750 5400 $105 1805 Required: Marcus Foundries has asked Twain for a set of seminars for managers at several levels. The bidding manager at Twain estimates that the work will require 30 guru-hours, 170 mentor-hours, and 450 helper-hours. She estimates out-of-pocket costs to be $39,000. What is the estimated cost of the proposed seminars, based on these estimates? Guru cost Mentar cast Helper cost Out-of-pocket cos! Estimated consultant and miscellaneous cost C&A costs Estimated costs

Answer 1

5-29 Add Add Add Guru Cost Mentor Cost Helper Cost Out of pocket cost Estimated Consultant a& Miscellaneous Cost G&A Cost Estimated Cost $ $ $ $ $ 22,500 750 x 30 68,000 400 x 170 47,250 105 x 450 39,000 given 176,750 282,800 176750 x 160% 459,550 Add 5-30 Cost of last year Direct Material Direct Labor Variable Overhead Total Variable cost Per unit cost $ 2.06 $ 1.48 $ 1.30 $ 4.84 working 370000 / 180000 267000 / 180000 234000 / 180000 Cost of this year Direct Material (increase by 20%) Direct Labor (increase by 4%) Variable Overhead (increase by 10%) Per unit cost 2.47 $ 1.54 1.43 2.06 x 1.20 1.48 x 1.04 1.30 x 1.10 This year Cost Item Direct Material Direct Labor Variable Overhead Fixed Overhead Total Cost $ $ $ $ 221,760 205,920 760,000 1,543,360 144000 x 2.47 144000 x 1.54 144000 x 1.43 given Past year This year Cost per unit $ 9.06 4.84 +4.22 10.72 1543360 / 144000 Fixed cost per unit last year = 760000 / 180000 -4.22 а less Highest activity (Machine Hours) Lowest activity (Machine Hours) Change in activity 1608 1284 324 less Cost associated to highest activity Cost associated to Lowest activity Change in cost $ $ $ 111,482 98,846 12,636 Variable cost per unit = Change in cost / change in activity = 12636 / 324 = $39 per unit Fixed cost = Highest activity cost - ( highest activity units x variable cost per unit) 111482 - (1608 x $39) = $48770 Varaible cost per machine hour Fixed Cost $ $ 39.00 48,770.00 Cost at 1600 machine hour Variable cost (1600 x $39) Fixed Cost Overhead cost $ $ $ 62,400.00 48,770.00 111,170.00