Question

Windsor and Associates is a CA firm that specializes in helping clients with complex tax problems. The firm charges its clients by applying a mark-up rate to job costs so that operating income is equal to 15% of revenues. Windsor allocates overhead costs such as computer systems and human resources using a single cost pool with direct labour costs as the allocation base. Direct labour costs consist of the cost for partners at $90 per hour and the cost for associates at $5 per hour. Following is the budget for the current year. Revenues Direct costs: Professional labour Overhead costs Operating income $3,212,588 940,000 1,790,700 $481,888 Calculate the overhead cost allocation rate for the current year. (Round to 2 decimal places, e.g. 17.54%.) Overhead cost allocation rate % of DL costs LINK TO TEXT LINK TO TEXT A potential client, Max Krzepkowski, has asked for a bid for completing his taxes. After examining his documentation, a partner estimates that the work would require 20 hours of partner time and 42 hours of associate time. If the firm wants to earn operating income of 15% of revenues for this client, what will the bid be? (Round answer to 2 decimal places, e.g. 15.25.) Bid amount $

Answer 1

1)	Overhead allocation rate =Overhead cost / direct labor cost
	=$1790700/940000
	190.50%	of direct labor cost
2)	Bid price
	Direct labor cost
	Partner	$   1,800.00
	(20 hours *$90 per hour)
	Associate	$       210.00
	(42 hours*$5 per hour)
	Overhead cost	1200.15
	($630*190.50%)
	Total	$   3,210.15
	Add; Markup	$       566.50
	($2010/85*15)
	Bid price	$   3,776.65