Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
16th Edition
ISBN: 9780134475585
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON

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Textbook Question
Chapter 4, Problem 4.26E

Job costing, consulting firm. Frontier Partners, a management consulting firm, has the following condensed budget for 2017:

 Revenues \$50,000,000 Total costs: Direct costs Professional Labor \$ 20,000,000 Indirect costs Client support 25,000,000 45,000,000 Operating income \$ 5,000,000

Frontier has a single direct-cost category (professional labor) and a single indirect-cost pool (client support). Indirect costs are allocated to jobs on the basis of professional labor costs.

1. 1. Prepare an overview diagram of the job-costing system. Calculate the 2017 budgeted indirect-cost rate for Frontier Partners.

Required

1. 2. The markup rate for pricing jobs is intended to produce operating income equal to 10% of revenues. Calculate the markup rate as a percentage of professional labor costs.
2. 3. Frontier is bidding on a consulting job for Sentinel Communications, a wireless communications company. The budgeted breakdown of professional labor on the job is as follows:
 Professional Labor Category Budgeted Rate per Hour Budgeted Hours Director \$200 9 Partner 100 24 Associate 50 100 Assistant 30 220

Calculate the budgeted cost of the Sentinel Communications job. How much will Frontier bid for the job if it is to earn its target operating income of 10% of revenues?

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