Abba Accounting expects its accountants to work a total of 24 000 direct labour hours per year. Abba's estimated total indirect costs are $240 000. The direct labour rate is $75 per hour. If Abba does a job requiring 40 hours of direct labour, and bills the client using a standard markup of 40%, what will be the amount that Abba bills the client for?

Question

Quizplus · Accepted Answer

The direct labor cost for 40 hours is 40 hours * $75/hour = $3,000. The indirect cost rate is $240,000 / 24,000 hours = $10/hour. The indirect cost for 40 hours is 40 hours * $10/hour = $400. Total cost is $3,000 + $400 = $3,400. With a 40% markup, the billing amount is $3,400 * 1.40 = $4,760.

Abba Accounting Expects Its Accountants to Work a Total of 24