Question

Littleton Promotional Services uses a job order system for costing and billing promotional services for dance and ballet performances. Littleton has four public relations specialists and office staff. At the beginning of​ 2019, Littleton estimated the total cost of salaries and benefits for the public relations specialists at​ $680,000 and a total of​ 8,000 billable hours for the year. The office and administrative costs were estimated at​ $408,000. The allocation base for office and administrative costs is billable hours. A new client is contracting with Littleton to promote a ballet tour in the United States. Littleton estimates that the job will require 40 billable hours of specialist time. If Littleton wishes to have a​ 25% mark up on cost on the​ job, what price should Littleton quote to the​ client?

a. 2040

b. 1360

c. 3400

d. 6800

Answer 1

Estimated total cost of salaries and benefits for the public relations specialists = $680,000

Estimated office and administrative costs = ​$408,000.

Estimated billable hours = 8,000

Total estimated costs = Estimated total cost of salaries and benefits for the public relations specialists + Estimated office and administrative costs

= 680,000 + 408,000

= $1,088,000

Allocation rate = Total estimated overheads/Estimated billable hours

= 1,088,000/8,000

= $136 per billable hour

Billable hours used on the job = 40

Cost applied to the job = Billable hours used on the job x Overhead rate

= 40 x 136

= $5,440

Markup = 25% on the cost

= 5,440 x 25%

= $1,360

Price to be quoted for the job = Cost applied to the job + Markup

= 5,440 + 1,360

= $6,800

Correct option is (d)