A local accounting firm employs 27 full-time professionals. The budgeted annual compensation per employee is $40,500. The average chargeable time is 420 hours per client annually. All professional labor costs are included in a single direct-cost category and are allocated to jobs on a per-hour basis.
Other costs are included in a single indirect-cost pool, allocated according to professional labor-hours. Budgeted indirect costs for the year are $781,500, and the firm expects to have 75 clients during the coming year.
If ten clients are lost and the workforce stays at 27 employees, then the direct labor cost rate per hour:

Question

Quizplus · Accepted Answer

Total direct cost = $40,500 × 27 = $1,093,500
Total hours = 420 × 65 = 27,300 hours
Direct cost rate per hour = $1,093,500 / 27,300 = $40.05 per hour
The direct labor cost rate per hour increased from $34.71 per hour to $40.05 per hour

A Local Accounting Firm Employs 27 Full-Time Professionals