Question

1. Calculate the current indirect cost allocation rate per professional hour. Calculate the total amount that would be billed to Laughlin given the current costing structure Calculate the activity cost allocation rates that could be used to allocate operating overhead costs to client jobs. Calculate the amount that would be billed to Laughlin using ABC costing. Which type of billing system is more fair to clients? Explain. Print Done

Answer 1

Part 1

The current indirect cost allocation rate per professional hour is $24.70

Current indirect cost allocation rate per professional hour = total overhead cost / total number of professional hours = 247000/10000 = $24.70

Part 2

Amount billed to client = $4263.35

Total cost of job = 69+24.70 = 93.70 * 35 = 3279.50

Amount billed to client = Total cost of job * Markup percentage = 3279.50*130% = $4263.35

Part 3

	Activity cost allocation rate
Transportation to clients	$0.40 per mile
Blueprint copying	$36 per copy
Office support	$41 per secretarial hour

	Total activity cost pool	/	Total activity allocation base	=	Activity cost allocation rate
Transportation to clients	6000		15000		$0.40 per mile
Blueprint copying	36000		1000		$36 per copy
Office support	205000		5000		$41 per secretarial hour

Part 4

Amount billed to client = 3275*130% = $4257.50

Total cost for job = (69*35)+(0.40*150)+(36*4)+(41*16) = $3275

Amount billed to client = Total cost of job * Markup percentage = 3275*130% = $4257.50

Part 5

The ABC billing system should be fairer to clients because they are charged according to the resources they used. It can be seen that copying blueprints is very expensive. According to ABC billing system, clients are charged according to the number of blueprint copies a job requires. In ABC billing system, the clients are charged according to job activity used by them.