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 predetermined overhead rate?

Question

Quizplus · Accepted Answer

The predetermined overhead rate is calculated based on budgeted costs and hours. The budgeted indirect costs are $525,000, and the total budgeted hours are 30 employees * 2,000 hours = 60,000 hours. So, the predetermined overhead rate is $525,000 / 60,000 hours = $8.75 per hour. For a job taking 27 hours, the overhead cost is 27 hours * $8.75 = $236.25. The direct labor cost is 27 hours * ($50,000 / 2,000 hours) = $675. Therefore, the total cost of the job is $675 (direct labor) + $236.25 (overhead) = $911.25.

A Local Financial Consulting Firm Employs 30 Full-Time Staff