Reference no: EM131809596

Question - Mike Mann, the president of Tax Ezy, is examining alternate ways to compute indirect-cost rates. He collects the following information from the budget for 2002:

1. Budgeted variable indirect costs: $10 per hour of professional labour hour

2. Budgeted fixed indirect costs: $50,000 per quarter

The budgeted billable professional labour-hours per quarter are:

January - March 20,000 hours

April - June 10,000 hours

July - September 4,000 hours

October - December 6,000 hours

Mike pays all tax professionals employed by Tax Ezy on an hourly basis ($30 per hour). Tax Ezy's job-costing system has a single direct-cost category (professional labour at $30 per hour) and a single indirect-cost pool (office support that is allocated using professional labour-hours). Tax Ezy charges clients $65 per professional labour-hour.

Required: (show your calculations)

1. Compute the budgeted indirect-cost rate per professional labour-hour using

a. Quarterly budgeted billable hours as the denominator

b. Annual budgeted billable hours as the denominator

2. Compute the operating income for the following four customers using

a. Quarterly indirect-cost rates

b. An annual indirect-cost rate

Stan Hansen; 10 hours in February

Ken Kai: 6 hours in March and 4 hours in August

Lelani Patera: 4 hours in June and 6 hours in August

Evelyn Stevens: 5 hours in January, 2 hours in September, and 3 hours in November

3. Comment on your results in requirement 2.