Littleton Promotional Services uses a job order system for costing and billing promotional services for dance and ballet performances

Question

Littleton has four public relations specialists and office staff. At the beginning of 2016, Littleton estimated the total cost of salaries and benefits for the public relations specialists at $684,000 and a total of 7,200 billable hours for the year. The office and administrative costs were estimated at $432,000. The allocation base for office and administrative costs is billable hours. A new client is contracting with Littleton to promote a ballet tour in the United States Littleton estimates that the job will require 38 billable hours of specialist time. If Littleton wishes to have a 20% mark up on cost on the job, what price should Littleton quote to the client?
A) $3,610
B) $2,280
C) $8,128
D) $2,238

Answer 1

C .C)
Total compensation to specialists $684,000
Total number of hours billed by specialists 7,200 hours
Direct labor rate per hour ($684,000/7,200 ) $95

Office and administrative costs per year $432,000
Total number of hours billed by specialists 7,200 hours
Predetermined overhead allocation rate used for indirect costs $60
($432,000/7,200 )

Costs:
Direct labor ($95/hour x 38 hours) $3,610
Indirect labor ($60/hour x 38 hours) 2,280
Total job cost (A ) $5,890
Mark up percentage x 38%
Mark up on total job cost (B) $2,238
Amount of clients' bill (A + B) $8,128