Aminta Accounting expects its accountants to work a total of 30,000 direct labor hours per year. Aminta's estimated total indirect costs are $150,000. The direct labor rate is $100 per hour. Direct labor hours is the allocation base for indirect costs. If Aminta does a job requiring 50 hours of direct labor and bills the client using a standard markup of 40%, calculate the amount of the client's bill.

Question

Quizplus · Accepted Answer

First, we need to calculate the predetermined indirect cost allocation rate:
Predetermined indirect cost allocation rate = Total indirect costs / Total direct labor hours
Predetermined indirect cost allocation rate = $150,000 / 30,000 hours
Predetermined indirect cost allocation rate = $5 per direct labor hour

Then, we can calculate the indirect cost that applies to the job:
Indirect cost = Direct labor hours x Predetermined indirect cost allocation rate
Indirect cost = 50 hours x $5 per hour
Indirect cost = $250

Next, we can calculate the total cost of the job:
Total cost = Direct labor cost + Indirect cost
Total cost = (Direct labor hours x Direct labor rate) + Indirect cost
Total cost = (50 hours x $100 per hour) + $250
Total cost = $5,250

Finally, we can calculate the client's bill with the given markup:
Client's bill = Total cost x (1 + Markup percentage)
Client's bill = $5,250 x (1 + 40%)
Client's bill = $5,250 x 1.4
Client's bill = $7,350

Therefore, the client's bill would be $7,350.

Aminta Accounting Expects Its Accountants to Work a Total of 30,000