Adler & Company is an architectural firm specializing in home remodelling for pr
ID: 2335094 • Letter: A
Question
Adler & Company is an architectural firm specializing in home remodelling for private clients and new office buildings for corporate clients. Adler & Company charges customers at a billing rate equal to 127% of the client's total job cost. A lient's total job cost is a combination of (1) professional time spent on the client ($70 per hour cost of employing each professional) and (2) operating overhead allocated to the client's job. Adler allocates operating overhead to jobs based on professional hours spent on the job. Adler estimates its five professionals will incur a total of 10,000 professional hours working on client jobs during the year.
ll operating costs other than professional salaries (travel reimbursements, copy costs, secretarial salaries, office lease, and so forth) can be assigned to the three activities. Total activity costs, cost drivers, and total usage of those cost drivers are estimated as follows:
Total
Total Usage
Total Usage
Activity
by Corporate
by Private
Activity
Cost
Cost Driver
Clients
Clients
Transporation to clients . . . . . .
$11,000
Round-trip
mileage to clients . . .
4,500
kilometres
10,500
km
Blueprint copying . . . . . . . . . . .
42,000
Number of copies . . . . . .
400
copies
600
copies
Office support . . . . . . . . . . . . . .
199,000
Secretarial time . . . . . . .
2,200
secretarial
2,800
secretarial
hours
hours
Total operating overhead . . . .
$252,000
Amy Lee hired Adler & Company to remodel her kitchen. A total of 33 professional hours were incurred on this job. In addition, Amy's remodelling job required one of the professionals to travel back and forth to her house for a total of 132 km. The blueprints had to be copied four times because Amy changed the plans several times. In addition, 19 hours of secretarial time were used lining up the subcontractors for the job.
1.
Calculate the current indirect cost allocation rate per professional hour.
2.
Calculate the amount that would be billed to Amy Lee given the current costing structure.
3.
Calculate the activity cost allocation rates that could be used to allocate operating overhead costs to client jobs.
4.
Calculate the amount that would be billed to Amy Lee using ABC costing.
5.
Which type of billing system is fairer to clients? Explain.
Requirement 1. Calculate the current indirect cost allocation rate per professional hour. (Round your answer to the nearest cent.)
The current indirect cost allocation rate per professional hour is .....$ .
Requirement 2. Calculate the amount that would be billed to Amy Lee given the current costing structure.
Determine the formula, then calculate the amount that would be billed to Amy Lee given the current costing structure. (Round all calculations to the nearest cent.)
x
=
Amount billed to client
x
=
Requirement 3. Calculate the activity cost allocation rates that could be used to allocate operating overhead costs to client jobs.
Determine the formula, then calculate the activity cost allocation rates that could be used to allocate operating overhead costs to client jobs. (Round your final answers to the nearest cent.)
/
=
Activity allocation rate
Transportation to clients
/
=
/ km
Blueprint copying
/
=
/ copy
Office support
/
=
/ secretarial hour
Requirement 4. Calculate the amount that would be billed to Amy Lee using ABC costing.
Determine the formula, then calculate the amount that would be billed to Amy Lee using ABC costing. (Round all calculations to the nearest cent.)
x
=
Amount billed to client
x
=
Requirement 5. Which type of billing system is fairer to clients? Explain.
The
ABC
traditional
billing system should be fairer to clients because they are charged according to
the direct labour hours on the job
the resources they used
the total hours on the job
.
For example, copying blueprints is
not expensive
very expensive
. Under the fairer system, clients are charged
a set one time fee for
according to the number of
blueprint copies that their job required. The fairer system better recognized the extent to which
operating
receiving
selling
costs are incurred by each unique client job.
Adler & Company is an architectural firm specializing in home remodelling for private clients and new office buildings for corporate clients. Adler & Company charges customers at a billing rate equal to 127% of the client's total job cost. A lient's total job cost is a combination of (1) professional time spent on the client ($70 per hour cost of employing each professional) and (2) operating overhead allocated to the client's job. Adler allocates operating overhead to jobs based on professional hours spent on the job. Adler estimates its five professionals will incur a total of 10,000 professional hours working on client jobs during the year.
ll operating costs other than professional salaries (travel reimbursements, copy costs, secretarial salaries, office lease, and so forth) can be assigned to the three activities. Total activity costs, cost drivers, and total usage of those cost drivers are estimated as follows:
Explanation / Answer
1 Indirect cost allocation rate = Total operating overhead ÷ Total professional hours $252,000 ÷ 10,000 $25.20 per professional hour 2 Professional Fees 33 hrs x $70 = $2,310 Overhead assigned 33 hrs x $25.20 = $831.60 Total Cost $3,141.60 x 127% x 127% Amount billed to client $ 3,989.83 3 Activity Allocation rates: A B C = A/B Total Total Usage Total Usage Total Activity Rate Activity by Corporate by Private Activity Activity Cost Cost Driver Clients Clients Usage Transporation to clients $11,000 Round-trip mileage to clients 4,500 Kms 10,500 Kms 15,000 0.73 Per KM Blueprint copying 42,000 Number of copies 400 copies 600 copies 1,000 42 Per Copy Office support 199,000 Secretarial time 2,200 secretarial hrs 2,800 secretarial hrs 5,000 39.80 Per Sec. Hr Total operating overhead $252,000 4 Professional Fees 33 hrs x $70 = $2,310 Overhead assigned: Transporation to clients 132 KM x $0.73 = $96.36 Blueprint copying 4 copy x $42 = $168 Office support 19 Sec. hrs x $39.80 = $756.20 Total Cost $3,330.56 x 127% x 127% Amount billed to client $ 4,229.81 5 The ABC billing system should be fairer to clients because they are charged according to the resources they used For example, copying blueprints is very expensive Under the fairer system, clients are charged according to the number of blueprint copies that their job required. The fairer system better recognized the extent to which operating costs are incurred by each unique client job.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.