Question

For the month of July, UP Payroll Services worked 1,750 hours for Dune Motors, 525 hours for Jake’s Charters, and 875 hours for Mission Hospital. UP bills clients at $118 an hour; its labor costs are $45 an hour. A total of 3,500 hours were worked in July with 350 hours not billable to clients. Overhead costs of $38,000 were incurred and were assigned to clients on the basis of direct labor-hours. Because 350 hours were not billable, some overhead was not assigned to jobs. UP had $30,100 in marketing and administrative costs. All transactions were on account.

Required:

a. What are the revenues and the cost per client? (Do not round intermediate calculations.)

b. Prepare an income statement for July. (Do not round intermediate calculations.)

Answer 1

SOLUTION

A.

	Dune Motors (1,750 hours)	Jake’s Charters (525 hours)	Mission Hospital (875 hours)	Total (3,150 hours)
Revenue (@$118) (A)	206,500	61,950	103,250	371,700
Labor (@$45)	78,750	23,625	39,375	141,750
Overheads (38,000/3,500=10.86)	19,005	5,701.50	9,502.50	34,209
Client costs (B)	97,755	29,326.50	48,877.50	175,959
Margin (A-B)	108,745	32,623.50	54,372.50	195,741

B. Income statement-

Particulars	Amount ($)	Amount ($)
Revenue		371,700
Less: Labor	141,750
Overheads	34,209	(175,959)
Gross margin		195,741
Less: Other costs
Labor (350*$45)	15,750
Overheads (350*$10.86)	3,801
Marketing and administrative costs	30,100	(49,651)
Net operating profit		146,090