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 $459,060 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			Tara
Annual Salary	$	206,280		$	99,760
Billable Hours		2,700			2,150

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 25 percent markup.

Required:
1. Compute the predetermined overhead rate.

2. Compute the hourly billing rate for Debbie and Tara.

Answer 1

Solution:

1. Computation of predetermined overhead rate

We are given that overheads are applied based on annual salary costs.

Total Overheads = $459,060

Total annual salary of Debbie and Tara = $ 206,280 + $ 99,760 = $ 306,040

Overhead rate = $ 459,060 / $ 306,040

= 1.5 or 150%

2.Computation of hourly billing rate for Debbie and Tara

We are given that hourly rate should cover salary plus overhead and 25% mark up

	Debbie	Tara
Salary	$ 206,280	$ 99,760
Add : Overheads (150%)	$309,420	$ 149,640
Total	$515,700	$249,400
Rate	$ 515,700/ 2700 hrs	$ 249,400 / 2150 hrs
	$ 191 per hour	$ 116 per hour
Add: Markup (25%)	$ 191 x 25 %	$ 116 x 25 %
	$ 47.75	$ 29
	$ 238.75 per hour	$ 145 per hour