Optimum Finance Inc.provides budget,savings,and investment services to clients who want a stress-free financial lifestyle.The company customizes a program for each client based on their individual goals that includes budget recommendations,investment counseling,and savings techniques.The company uses a job order cost system that keeps track of the cost of the amount of time financial consultants spend with each client. Optimum applies all indirect operating costs (e.g. ,rent,utilities,and management salaries)as a percentage of the consultant's labor cost.During the most recent year,the firm estimated that it would pay $500,000 to its consultants and incur indirect operating costs of $750,000.Actual consultant labor costs were $537,500 and actual indirect operating costs were $725,000.What is the predetermined overhead rate that Optimum will use for the current year?

Question

Quizplus · Accepted Answer

The predetermined overhead rate is calculated based on the estimated costs, which are $750,000 of indirect operating costs divided by $500,000 of consultant labor costs, resulting in $1.50 per dollar of consultant labor cost.