McBride and Associates employs two professional appraisers, each having a differ
ID: 2465762 • Letter: M
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 $346,500 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:
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.
Compute the predetermined overhead rate.
Compute the hourly billing rate for Debbie and Tara. (Do not round your intermediate calculations.)
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 $346,500 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:
Explanation / Answer
1
Calculation of predetermined overhead rate:
Estimated Total Overhead costs (A)
346500
Total Annual Salary (150000+81000) (B)
231000
Predetermined overhead rate = A/B =
$ 1.50
Per $ of Salary
2
Calculation of hourly billing rate for Debbie and Tara:
Debbie
Tara
Annual Salary
$ 150,000
$ 81,000
Add: Overhead Costs Allocated
$ 225,000
$ 121,500
(150000*1.50)
(81000*1.50)
Total Costs
$ 375,000
$ 202,500
Add: Markup (20% of Cost)
$ 75,000
$ 40,500
(375000*20%)
(202500*20%)
Total Bill Amount (A)
$ 450,000
$ 243,000
Billable Hours (B)
2000
1800
Hourly billing rate =A/B =
$ 225
$ 135
1
Calculation of predetermined overhead rate:
Estimated Total Overhead costs (A)
346500
Total Annual Salary (150000+81000) (B)
231000
Predetermined overhead rate = A/B =
$ 1.50
Per $ of Salary
2
Calculation of hourly billing rate for Debbie and Tara:
Debbie
Tara
Annual Salary
$ 150,000
$ 81,000
Add: Overhead Costs Allocated
$ 225,000
$ 121,500
(150000*1.50)
(81000*1.50)
Total Costs
$ 375,000
$ 202,500
Add: Markup (20% of Cost)
$ 75,000
$ 40,500
(375000*20%)
(202500*20%)
Total Bill Amount (A)
$ 450,000
$ 243,000
Billable Hours (B)
2000
1800
Hourly billing rate =A/B =
$ 225
$ 135