Question

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. Riley and Malory Medical Office employs 12 full-time doctors and 10 physician assistants. Direct and indirect costs are applied on a professional labor-hour basis that includes both doctor and physician assistant hours. Following is information for 2014:

                                                                                                  Budget                 Actual

               Indirect costs                                                        $270,000             $300,000

               Annual salary of each doctor                            $100,000             $110,000

               Annual salary of each physician assistant       $ 29,000              $ 30,000

               Total professional labor-hours                            50,000 dlh          60,000 dlh

1. What is the actual direct-cost rate per professional labor-hour?
2. What is the actual indirect-cost rate per professional labor-hour?
3. How much should the client be billed in an actual costing system if 200 labor-hours are used?

Answer 1

a.

Actual direct-cost rate per professional labor-hour = [(Annual salary of each doctor * doctors) + (Annual salary of each physician assistant * physician assistants)] / Total professional labor-hours

= [($110,000 * 12) + ($ 30,000 * 10)] / 60,000 dlh

= ($1,320,000 + $300,000) / 60,000

= $27.00

b.

Actual indirect-cost rate per professional labor-hour = Actual Indirect costs / Total professional labor-hours   

= $300,000 / 60,000

= $5.00

c.

Amount should be billed = (Actual direct-cost rate per professional labor-hour * 200 labor hours) + (Actual indirect-cost rate per professional labor-hour * 200 labor hours)

= ($27.00 * 200) + ($5.00 * 200)

= $5,400 + $1,000

= $6,400