Fixed costs remain constant at $400,000 per month.During high-output months variable costs are $320,000,and during low-output months variable costs are $80,000.What are the respective high and low indirect-cost rates if budgeted professional labor-hours are 16,000 for high-output months and 4,000 for low-output months?
A) $45.00 per hour; $120.00 per hour
B) $45.00 per hour; $45.00 per hour
C) $25.00 per hour; $20.00 per hour
D) $56.20 per hour; $120.00 per hour

Question

Quizplus · Accepted Answer

For high-output months: Total costs = Fixed costs + Variable costs = $400,000 + $320,000 = $720,000. Indirect-cost rate = $720,000 / 16,000 hours = $45.00 per hour.  For low-output months: Total costs = Fixed costs + Variable costs = $400,000 + $80,000 = $480,000. Indirect-cost rate = $480,000 / 4,000 hours = $120.00 per hour.

Fixed Costs Remain Constant at $400,000 Per Month