Question

McBride and Associates employs two professional appraisers, each having a different specialty. Debbie specializes in commercial appraisals and Tara specializes in residential appraisals. The company expects to incur total overhead costs of $410,280 during the year and applies overhead based on annual salary costs. The salaries and billable hours of the two appraisers are estimated to be as follows Debbie Annual Salary Billable Hours $181,920 $91,600 2,400 2,000 The accountant for McBride and Associates is computing the hourly rate that should be used to charge clients for Debbie and Tara's services. The hourly billing rate should be set to cover the total cost of services (salary plus overhead) plus a 20 percent markup. Required 1. Compute the predetermined overhead rate. Predetermined Overhead Rate % of Salary Cost 2. Compute the hourly billing rate for Debbie and Tara. (Do not round your intermediate calculations, and round your final answers to 2 decimal places.) Debbie Tara Billing Rate

Answer 1

1). Calculation of Predetermined overhead rate based on salary cost:
Total Salary = $181,920 + $91,600 = $273,520
Total overhead = $410,280

Predetermined overhead rate = Total overhead / Total salary cost
= $410,280 / $273,520
= 1.5 or 150% of salary cost

2). Calculation of hourly billing rate:
Debbie:
Salary = $181,920
Overhead = $181,920 * 150% = $272,880
Total cost = $454,800
Markup 20% = $454,800 * 20% = $90,960
Total billing amount = $545,760

Billing rate per hour = Total billing amount / Total hours
= $545,760 / 2400
= $227.4 per hour

Tara:
Salary = $91,600
Overhead = $91,600 * 150% = $137,400
Total cost = $229,000
Markup 20% = $229,000 * 20% = $45,800
Total billing amount = $274,800

Billing rate per hour = Total billing amount / Total hours
= $274,800 / 2000
= $137.4 per hour