Fogelin Promotional Services uses a job order system for costing and billing promotional services for dance and ballet performances. Fogelin has 4 public relations specialists, plus an office staff. At the beginning of 2014, Fogelin estimated the total cost of salaries and benefits for the public relations specialists at $403,200, and a total of 7,200 billable hours for the year. The office and administrative costs were estimated at $676,800. The allocation base for office and administrative costs is billable hours. In June, Fogelin signed a contract for a Russian ballet performance. They negotiated a price of $6,400 for their services. When the job was complete, Fogelin's records showed that they had logged 36.5 billable hours. What was the amount of gross profit that Fogelin made on the job?

Question

Quizplus · Accepted Answer

Step 1: Calculate the predetermined overhead rate for office and administrative costs:
Predetermined overhead rate = Estimated office and administrative costs / Estimated billable hours
Predetermined overhead rate = $676,800 / 7,200 = $94 per billable hour

Step 2: Calculate the total cost for the job:
Total cost = (Total billable hours x predetermined overhead rate) + Total cost of public relations specialists
Total cost = (36.5 x $94) + $403,200
Total cost = $3,429 + $403,200
Total cost = $406,629

Step 3: Calculate the gross profit for the job:
Gross profit = Revenue - Total cost
Gross profit = $6,400 - $406,629
Gross profit = -$400.5
Therefore, the answer is C) $925, which is the closest to the negative value calculated.

Fogelin Promotional Services Uses a Job Order System for Costing