Q27E

Question

Question: Refer to Exercise E19-26. Western desires a 20% target net profit after covering all costs. Considering the total costs assigned to the Halbert engagement in Exercise E19-26, what would Western have to charge the customer to achieve that net profit? Roundto two decimal places.

Step-by-Step Solution

Verified

Answer

Targeted service charge:$166,464

1Step-by-Step-Solution Step1: Cost assigned to Halbert

$D i r e c t l a b o r c o s t = T o t a l d i r e c t l a b o r h o u r s \times L a b o r r a t e = 170 \times $ 280 = $ 47, 600$

$D o c u m e n t a t i o n P r e p r a t i o n C o s t = P r e d e t e r m i e n d o v e r h e a d a l l o c a t i o n r a t e \times N o . o f p a g e s = $ 50 \times 310 = $ 15, 500$

$T S C o s t = P r e d e t e r m i e n d o v e r h e a d a l l o c a t i o n r a t e \times N o . o f a p p l i c a t i o n s u s e d = $ 210 \times 80 = $ 16, 800$

$T r a i n i n g C o s t = P r e d e t e r m i e n d o v e r h e a d a l l o c a t i o n r a t e \times N o . o f d i r e c t l a b o r h o u r s = $ 106 \times 170 = $ 18, 020$

2Step 2: Computation of target service charge

As the targeted net profit is 20% of sales, So the operating cost percent to sales would be

19-30E

Q28E

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