Question

Exercise 15-18 Job order costing for services LO A1

Hansel Corporation has requested bids from several architects to design its new corporate headquarters. Frey Architects is one of the firms bidding on the job. Frey estimates that the job will require the following direct labor.

Labor	Estimated Hours				Hourly Rate
Architects		168				$	300
Staff		336					75
Clerical		725					20

  
Frey applies overhead to jobs at 175% of direct labor cost. Frey would like to earn at least $55,000 profit on the architectural job. Based on past experience and market research, it estimates that the competition will bid between $294,000 and $368,000 for the job.

1. What is Frey’s estimated cost of the architectural job?
2. If Frey bids a price of $294,000, will it earn its target profit of $55,000?
3. What is Frey’s Estimated selling price?

Answer 1

1.Frey’s estimated cost of the architectural
Labor cost
Labor	Estimated Hours	Hourly Rate	Cost
Architects	168	$             300	$         50,400
Staff	336	$                75	$         25,200
Clerical	725	$                20	$         14,500
Total			$         90,100
Overhead cost
=$90100*175%
$         1,57,675
Total estimated cost = $90100+157675
$         2,47,775
2) Frey bids a price of $294,000, will it earn its target profit of $55,000
Sell price	$                    2,94,000
Less:
Cost	$                    2,47,775
Profit	$                        46,225
It will not earn $50000 profit
3)Frey’s Estimated selling price
Total cost	$                    2,47,775
Add:
Desired profit	$                        55,000
Sell price	$                    3,02,775
Please do upvote.