Question

Optimum Health Inc. provides diet, fitness, and nutrition services to clients who want a healthier lifestyle. The company customizes a program for each client based on their individual goals that includes diet recommendations (prepackaged food and supplements), nutrition counseling, and guided fitness (personal training). The company uses a modified job order cost system that keeps track of the cost of the food, vitamins, and nutritional supplements the company provides to each client, as well as the amount of time nutrition and fitness consultants spend with each client. Optimum applies all indirect operating costs (e.g., rent, utilities, and management salaries) as a percentage of the consultant's labor cost. During the most recent year, the firm estimated that it would pay $210,000 to its consultants and incur indirect operating costs of $315,000. Actual consultant labor costs were $225,000 and actual indirect operating costs were $305,000. The cost records for three of Optimum's clients are summarized below: Judy $tea Tom $1,100 Elizabeth $ 400 Food and nutritional supplements Nutritional counseling ($16 per hour) Personal fitness training ($21 per hour) Indirect operating costs 420 840 Required: 1. Compute the predetermined overhead rate. 2. Determine the total cost of serving each client. 3. Assume the company charges clients an up-front fee of $410. Food and nutritional supplements are priced at 25 percent above cost. Clients are charged $42 per hour for consulting services (both nutrition counseling and personal training). Determine the profitability of each client. Complete this question by entering your answers in the tabs below. Required: Required 2 Required 3 Compute the predetermined overhead rate. Predetermined Overhead Rate 150 % Required Required 2 >

Answer 1

" (4 Predetermined overhead fate z Esti Indirect Estimated operating labour cost cost = $ 315000 $ 2, 10,ooo 150% (1) Cost of servicing each client Particulars food and nutsitional supplements Judy & boo Ton 8 lloo Elizabeth & 400 Consulting Labour Castr Nutritional counseling (16 Per Hour) / 160 Jetconcel fitness training ($91 Per Hous) 420 5,80 320 630 950 192 840 1032 1495 1548. Tudireet ofere they cout (150y of Labour costs 870 Total last 20.50 3475 I 2980 Jon Elisabeth 410 $1375 410 8600 di) Profitability of each client; Particulars Jugu Reveule on upfront fee 401 foods and nutritional Supplements &750 Add! Conculting Labour Cast Nutriontial counseling Personal Allness $ 840 - Total Revenue 2420 less! Sotal cost (105o) 370 8420 soy 1680 8840 1260 3895 (3475) (29807 410 214 Profitability,