Fogelin Promotional Services uses a job order system for costing and billing promotional services for dance and ballet performances.Fogelin has four public relations specialists,and 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 the hourly rate that needs to be charged to cover the estimated costs and to achieve a 25% gross profit on the job.

Total estimated costs for the public relations specialists: $403,200 
Total estimated billable hours for the year: 7,200 
Hourly rate for the public relations specialists: $403,200 / 7,200 = $56

Total estimated costs for office and administrative expenses: $676,800 
Allocation base: billable hours 
Hourly rate for office and administrative expenses: $676,800 / 7,200 = $94

Total hourly rate: $56 + $94 = $150

To achieve a 25% gross profit, the markup percentage would be 33.33% (25% / (100% - 25%)).

The quoted price for the job would be: 
$150 × 1.3333 × 40 = $7,499.20

Rounding to the nearest whole dollar, the price should be quoted as $7,500. Therefore, the best choice is C.

Fogelin Promotional Services Uses a Job Order System for Costing