Natasha's Interior Designs has support staff for its professional designers. The two professionals work a total of 1,800 hours each and make $45,000 each per year. The total support budget is $90,000, of which $60,000 is professional support, and $30,000 is general office overhead. A job requiring 30 professional hours should be billed how much for overhead if a simplified costing approach is used and labor cost is the cost driver?

Question

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Labor cost is calculated by determining that each associate works for $25 an hour ($45,000 / 1,800 = $25 per hr.). If two professionals each work 1,800 hours, or a total of 3,600 hours, at $25 an hour, the total labor cost is $90,000. The overhead of $90,000 divided by the cost driver labor cost of $90,000 gives an overhead rate of $1 per $1 of labor cost. If the job incurred professional pay of $750 (30 hours x $25), then overhead applied should be $750.

Natasha's Interior Designs Has Support Staff for Its Professional Designers