Q17-6TI - Horngren'S Financial And Managerial Accounting

Question

Question: Wesson Company is a consulting firm. The firm expects to have \(45,000 in indirect costs during the year and bill customers for 6,000 hours. The cost of direct labor is \)75 per hour.

16. Calculate the predetermined overhead allocation rate for Wesson using estimated billable hours for the allocation base.

17. Wesson completed a consulting job for George Peterson and billed the customer for 15 hours. What was the total cost of the consulting job?

18. If Wesson wants to earn a profit equal to 60% of the cost of a job, how much should the company charge Mr. Peterson?

Step-by-Step Solution

Answer

Answer:

The predetermined overhead allocation rate is $7.50 per hour.

 

The total cost of the consulting job for 15 hours is $112.50.

 

The amount charged by the company from Mr. Peterson is $12 per hour.

                                                                               

Step 1: Predetermined overhead allocation rate

$$\begin{gathered} \mathit{P}\mathit{r}\mathit{e}\mathit{d}\mathit{e}\mathit{t}\mathit{e}\mathit{r}\mathit{m}\mathit{i}\mathit{n}\mathit{e}\mathit{d}\mathbf{ }\mathit{o}\mathit{v}\mathit{e}\mathit{r}\mathit{h}\mathit{e}\mathit{a}\mathit{d}\mathbf{ }\mathit{a}\mathit{l}\mathit{l}\mathit{o}\mathit{c}\mathit{a}\mathit{t}\mathit{i}\mathit{o}\mathit{n}\mathbf{ }\mathit{r}\mathit{a}\mathit{t}\mathit{e}\mathbf{ }\mathbf{=}\frac{\mathbf{T}\mathbf{o}\mathbf{t}\mathbf{a}\mathbf{l}\mathbf{ }\mathbf{e}\mathbf{s}\mathbf{t}\mathbf{o}\mathbf{i}\mathbf{m}\mathbf{a}\mathbf{t}\mathbf{e}\mathbf{d}\mathbf{ }\mathbf{o}\mathbf{v}\mathbf{e}\mathbf{r}\mathbf{h}\mathbf{e}\mathbf{a}\mathbf{d}\mathbf{ }\mathbf{c}\mathbf{o}\mathbf{s}\mathbf{t}}{\mathbf{T}\mathbf{o}\mathbf{t}\mathbf{a}\mathbf{l}\mathbf{ }\mathbf{e}\mathbf{s}\mathbf{t}\mathbf{i}\mathbf{m}\mathbf{a}\mathbf{t}\mathbf{e}\mathbf{d}\mathbf{ }\mathbf{l}\mathbf{a}\mathbf{b}\mathbf{o}\mathbf{r}\mathbf{ }\mathbf{h}\mathbf{o}\mathbf{u}\mathbf{r}\mathbf{s}\mathbf{ }\mathbf{o}\mathbf{f}\mathbf{ }\mathbf{t}\mathbf{h}\mathbf{e}\mathbf{ }\mathbf{l}\mathbf{o}\mathbf{w}\mathbf{e}\mathbf{r}\mathbf{h}\mathbf{e}\mathbf{a}\mathbf{d}\mathbf{ }\mathbf{a}\mathbf{l}\mathbf{l}\mathbf{o}\mathbf{c}\mathbf{a}\mathbf{t}\mathbf{i}\mathbf{o}\mathbf{n}\mathbf{ }\mathbf{b}\mathbf{a}\mathbf{s}\mathbf{e}} \\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{ }\frac{\mathbf{\$}\mathbf{45}\mathbf{,}\mathbf{000}}{\mathbf{6000}} \\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{7}\mathbf{.}\mathbf{50} \end{gathered}$$

Step 2: Total cost of the consulting job for 15 hours

$$\begin{gathered} \mathit{T}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathbf{ }\mathbf{cos}\mathit{t}\mathbf{ }\mathbf{=}\mathit{P}\mathit{r}\mathit{e}\mathit{d}\mathit{e}\mathit{t}\mathit{e}\mathit{r}\mathit{m}\mathit{i}\mathit{n}\mathit{e}\mathit{d}\mathbf{ }\mathit{o}\mathit{v}\mathit{e}\mathit{r}\mathit{h}\mathit{e}\mathit{a}\mathit{d}\mathbf{ }\mathit{a}\mathit{l}\mathit{l}\mathit{o}\mathit{c}\mathit{a}\mathit{t}\mathit{i}\mathit{o}\mathit{n}\mathbf{ }\mathit{r}\mathit{a}\mathit{t}\mathit{e}\mathbf{\times }\mathit{D}\mathit{i}\mathit{r}\mathit{e}\mathit{c}\mathit{t}\mathbf{ }\mathit{l}\mathit{a}\mathit{b}\mathit{o}\mathit{r}\mathbf{ }\mathbf{cos}\mathit{t} \\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{ }\mathbf{\$}\mathbf{7}\mathbf{.}\mathbf{50}\mathbf{\times }\mathbf{15}\mathbf{ }\mathit{h}\mathit{o}\mathit{u}\mathit{r}\mathit{s} \\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{112}\mathbf{.}\mathbf{50} \end{gathered}$$

Step 3: Amount charged by the company from Mr. Peterson

$$\begin{gathered} \mathit{A}\mathit{m}\mathit{o}\mathit{u}\mathit{n}\mathit{t}\mathbf{ }\mathit{c}\mathit{h}\mathit{a}\mathit{r}\mathit{g}\mathit{e}\mathit{d}\mathbf{ }\mathbf{=}\mathbf{ }\mathit{o}\mathit{v}\mathit{e}\mathit{r}\mathit{h}\mathit{e}\mathit{a}\mathit{d}\mathbf{ }\mathit{a}\mathit{l}\mathit{l}\mathit{o}\mathit{c}\mathit{a}\mathit{t}\mathit{i}\mathit{o}\mathit{n}\mathbf{ }\mathit{r}\mathit{a}\mathit{t}\mathit{e}\mathbf{ }\mathit{p}\mathit{e}\mathit{r}\mathbf{ }\mathit{h}\mathit{o}\mathit{u}\mathit{r}\mathbf{ }\mathbf{(}\mathbf{1}\mathbf{+}\mathbf{ }\mathit{p}\mathit{r}\mathit{o}\mathit{f}\mathit{i}\mathit{t}\mathbf{ }\mathit{m}\mathit{a}\mathit{r}\mathit{g}\mathit{i}\mathit{n}\mathbf{)} \\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{ }\mathbf{\$}\mathbf{7}\mathbf{.}\mathbf{50}\mathbf{ }\mathbf{(}\mathbf{1}\mathbf{+}\mathbf{0}\mathbf{.}\mathbf{60}\mathbf{)} \\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{12}\mathbf{ }\mathit{p}\mathit{e}\mathit{r}\mathbf{ }\mathit{h}\mathit{o}\mathit{u}\mathit{r} \end{gathered}$$