Question

Trainor and Associates is a CPA firm that specializes in helping clients with complex tax problems. The firm charges its clients by applying a markup rate to job costs so that operating income is equal to 15% of revenues. Trainor allocates overhead costs such as computer systems and human resources using a single cost pool with direct labor costs as the allocation base. Direct labor costs consist of the cost for partners at $100 per hour and the cost for associates at $50 per hour. Following is the budget for the current year.
Revenues ............ $ 3,500,000
Direct costs: Professional labor ..... 1,000,000
Overhead costs ......... 1,975,000
Operating income ........ $ 525,000

REQUIRED
A. Calculate the overhead cost allocation rate for the current year.
B. A potential client, Max Procrastinator, has asked for a bid for completing his taxes. After examining his documentation, a partner estimates that the work would require 20 hours of partner time and 45 hours of associate time. If the firm wants to earn operating income of 15% of revenues for this client, what will the bid be?



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  • CreatedJanuary 26, 2015
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