Problem 2-9 Fontaine & Associates is an accounting firm that provides audit, tax

Question

Problem 2-9 Fontaine & Associates is an accounting firm that provides audit, tax, and accounting services to medium-size retail companies. It employs 56 professionals (12 partners and 44 associates) who work directly with clients. The average expected total compensation per professional for the year is $171,000. The services of Fontaine are in high demand, and each professional works for clients to their maximum of 1,900 billable hours. All professional salaries are traced to individual client service summaries. All costs other than professional salaries are included in a single indirect cost pool (professional support). The indirect costs are assigned to service summaries using professional hours as the allocation base. The expected amount of indirect costs for the year is $8,512,000. Compute the budgeted indirect cost rate per hour of professional service. Budgeted indirect cost rate $ per hour Fontaine & Associates is bidding on tax and audit services for a potential client that are expected to require 100 hours of professional service time. Calculate the estimated cost of the work using average professional wage rates and basing indirect costs on estimated service time. Estimated cost of the work $

Explanation / Answer

Fontaine & Associates All Amounts in $ Total Number of Billable Hours worked by Partners and Associates of the firm = 56 X 1,900 = 106400 hours Since the expected amount of indirect costs is $ 5,812,000 Hence, the budgeted indirect cost rate per hour of professional service = 54.62 $ per hour Bidding Cost for Potential Client Cost for 1,900 billable hours = 1,900 X 56 X 171,000 = 18194400000 Proportionate Cost for 100 hours of professional service time = 957600000 No. of hours totally required for 56 people = 56 X 100 = 5,600 hours At a rate of $ 54.62 per hour, the indirect cost working comes to 305872 Estimated Cost of the Work 957905872

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