Terps Builders is currently using the Dual Rate method for overhead allocation .

Question

Terps Builders is currently using the Dual Rate method for overhead
allocation. As the project manager of University View, how much overhead
should you charge on the total project cost? The company’s 2013 income
statement and the University View project direct cost estimation are given below.

Terps Builders INC
Income Statement
University View

12/31/2013

Direct Costs
Material $ 1,260,000
Direct Labor 440,000
Subcontractor costs 850,000
Other direct costs -
Total direct costs $ 2,550,000

Revenue $ 15,000,000 100%
Construction Cost
Material $ 7,200,000 48%
Direct Labor (including
payroll taxes, fringes & 3,300,000 22%
Subcontractor costs 300,000 2%
Other direct costs 150,000 1%
Total direct costs $ 10,950,000 73%
Gross profit $ 4,050,000 27%
Overhead 3,600,000 24%
Net profit (before taxes) $ 450,000 3%

Explanation / Answer

Overhead that should be allocated to the project cost should be 3,600,000 .

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