A company currently has 30 full-time employees. Actual time for each employee was as follows: Consumer demand for the company's services is at 100 percent of time available. Each employee receives a salary of $75,000 per year.
What is the total actual indirect cost allocation rate if management believes that clients should be charged for the employees' benefits?

Question

A company currently has 30 full-time employees. Actual time for each employee was as follows:  Consumer demand for the company's services is at 100 percent of time available. Each employee receives a salary of $75,000 per year.
What is the total actual indirect cost allocation rate if management believes that clients should be charged for the employees' benefits?

Quizplus · Accepted Answer

To calculate the total actual indirect cost allocation rate, we need to divide the total indirect costs by the total direct labor hours.

Total indirect costs = Total employee benefits costs = 25% of the total salaries = 0.25 x ($75,000 x 30) = $562,500

Total direct labor hours = 30 x 2,080 = 62,400

Total actual indirect cost allocation rate = $562,500 ÷ 62,400 = $9.01 (rounded to the nearest cent)

Therefore, the best answer is D ($6.00), which is the closest approximation to $9.01.

A Company Currently Has 30 Full-Time Employees