A local financial consulting firm employs 30 full-time staff.The budgeted compensation per employee is $50,000, for 2,000 hours.All direct labour costs are charged to clients.Any other costs are included in a single indirect-cost pool, allocated according to labour-hours.Actual indirect costs were $750,000.Budgeted indirect costs for the year are $525,000 and the firm expects to have 60 clients during the coming year.What is the total cost of a job which took 27 hours, using normal costing?

Question

Quizplus · Accepted Answer

The total cost of a job is the sum of direct labour costs and indirect costs. Direct labour costs are charged to clients at the budgeted rate of $50,000 per 2,000 hours, or $25 per hour. Indirect costs are allocated to clients according to labour-hours, so the indirect cost rate is $525,000 / (30 employees * 2,000 hours) = $8.75 per hour. The total cost of a job which took 27 hours is therefore $25 * 27 + $8.75 * 27 = $911.25.

A Local Financial Consulting Firm Employs 30 Full-Time Staff