James Ford an architect charges $150 per hour for his time spent drawing blueprints for clients. His budgeted annual cost to run his office is $12,000 a year (rent and utilities) and he allocates these indirect costs based on direct labor hours. Ford predicts that he will work about 1,000 billable hours per year for his clients. Recently, Ford completed a set of blueprints for a garage for one of his clients and involving 30 hours of work, How much indirect costs should ford allocate to the garage blueprints job when considering how much to charge his client and cover his costs?

Question

Quizplus · Accepted Answer

To calculate the indirect costs to allocate to the garage blueprints job, we need to use the indirect cost allocation rate.

Indirect cost allocation rate = Total budgeted indirect costs / Total budgeted direct labor hours

Total budgeted indirect costs = $12,000 
Total budgeted direct labor hours = 1,000

Indirect cost allocation rate = $12,000 / 1,000 = $12 per direct labor hour

Now, we can use this indirect cost allocation rate to allocate the indirect costs to the garage blueprints job.

Indirect costs for the garage blueprints job = Indirect cost allocation rate x Direct labor hours for the job

Direct labor hours for the garage blueprints job = 30

Indirect costs for the garage blueprints job = $12 x 30 = $360

Therefore, James Ford should allocate $360 of indirect costs to the garage blueprints job when considering how much to charge his client and cover his costs.

James Ford an Architect Charges $150 Per Hour for His