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. A new client is contracting with Fogelin to promote a ballet tour in the U.S. Fogelin estimates that the job will require 40 billable hours of specialist time. If Fogelin wishes to make a 25% gross profit on the job, what price should Fogelin quote to the client?

Question

Quizplus · Accepted Answer

First, we need to calculate Fogelin's predetermined overhead rate:
Predetermined overhead rate = Estimated overhead costs / Estimated billable hours
Predetermined overhead rate = ($403,200 + $676,800) / 7,200 = $125 per billable hour

Next, we need to calculate the cost of the job:
Cost of job = Specialist time + Overhead
Cost of job = (40 billable hours x $125 per hour) + $676,800
Cost of job = $5,000 + $676,800
Cost of job = $681,800

Finally, we can calculate the price to quote to the client:
Price to quote = Cost of job / (1 - Desired gross profit percentage)
Price to quote = $681,800 / (1 - 0.25)
Price to quote = $681,800 / 0.75
Price to quote = $909,066.67 rounded to the nearest hundred
Price to quote = $7,500

Fogelin Promotional Services Uses a Job Order System for Costing