Mertz Group is a consulting firm specializing in mergers and acquisitions. In addition to the three partners, the firm employs nine consultants who work directly with clients. The average budgeted compensation for the twelve professionals is $65,000. Each consultant is budgeted at 1,600 billable hours per year. All professional labor costs are included in a single direct cost pool and are traced to jobs on a per-hour basis. All nonprofessional labor costs are included in a single overhead cost pool and are allocated to jobs using professional labor hours as the allocation base. Budgeted overhead costs total $600,000. During the period, the firm worked on the following jobs:(a) The Smith account: Consultants booked 100 hours(b) The Davis account: Consultants booked 175 hours.Required:1)

Question

Compute the budgeted direct cost rate per hour of professional labor. (Round your answer to three decimal places.)2) Compute the budgeted overhead cost rate per hour of professional labor.3) Compute the cost assigned to each job.4) Compute the fee to be charged to each client, assuming the company uses a cost-plus pricing approach and marks up cost by 20%.

What will be an ideal response?

Answer 1

1) Budgeted direct cost rate per hour of professional labor:
$65,000 ÷ 1,600 = $40.625 per professional labor hour
2) Budgeted overhead cost rate per hour of professional labor:
$600,000 ÷ (1,600 hours × 12) = $31.25 per professional labor hour
3) Cost assigned to jobs:

  

4) Fee:
Smith = $7,187.50 × 1.20 = $8,625
Dalton = $12,578.125 × 1.20 = $15,093.75