Computing Overhead Rates and Client Billing in a Service Firm Sutherland Estimating Company employs three professional estimators, each having a different specialty. John Spencer specializes in structural estimating; Steve Ray, electrical estimating;

and Dave Eugene, mechanical estimating. The firm expects to incur the following operating costs for 2009; travel and materials costs are billed separately to clients.

The salaries and billable hours of the three estimators are expected to be as follows:

Required:
1. Compute the overhead cost rate that should be used for each of the estimators (based on the expected hours to be billed, with overhead cost rates varying in proportion to each estimator’s compensation) to ensure that the total expected operating costs for 2009 will be recovered from clients. (Hint: Allocate total estimated overhead costs to each estimator based on relative salaries, then relate the allocated costs to the hours expected to be worked by each estimator.)
2. Using the overhead cost rates determined in part (1), determine the costs associated with the firm’s work for Landslide Company with the following estimating services and related costs: Spencer, 150 hours; Ray, 60 hours; Eugene, 15 hours; transportation and supplies costs, $2,400.

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Office salaries and wages Office supplies.... Utilities and telephone Depreciation.... Taxes and insurance Miscellaneous expenses Total estimated costs for 2009 $ 54,000 30,000 23,100 24,300 15,450 3,150 $150,000