DE25-10 Daily Exercises 25-10 through 25-16 center on Soliloquy Softworks, Inc., a tech- nology consulting firm and Microsoft Solutions Provider focused on Web site development and integration of Internet business applications. President Mary Nelson's ear is ringing after an unpleasant call from client Barry Wilner. Wilner was irate after opening his bill for Soliloquy's redesign of his company's Web site. Wilner said that Nelson's major competitor. Delta Applications, charged much more reasonable fees to another company for which Wilner serves on the board of directors. Nelson is puzzled for two reasons. First, she is confident that her firm knows Web site design and support as well as any of Soliloquy's competitors. Nelson cannot understand how Delta Applications can undercut Soliloquy's rates and still make a profit. But Delta Applications is reputed to be very profitable. Second, just yesterday Nelson received a call from client Bob Lee. Lee was happy with the excellent service and reasonable fees Nelson charged him for adding a database-driven job posting feature to his company's Web site. Nelson was surprised by Lee's compliments because this was an unusual job for Soliloquy that required development of complex database management and control applications, and she had felt a little uneasy accepting it. Like most consulting firms, Soliloquy traces direct labor to individual engagements (jobs). Soliloquy allocated indirect costs to engagements using a budgeted rate based on direct labor hours. Nelson is happy with this system, which she has used since she established Soliloquy in 1995. Nelson expects to incur $180,000 of indirect costs this year, and she expects her firm to work 3,000 direct labor hours. Nelson and the other systems consultants earn $200 per hour. Clients are billed at 150% of direct labor cost. Last month Soliloquy's consultants spent 90 hours on Wilner's engagement. They also spent 90 hours on Lee's engagement. 1. Compute Soliloquy's indirect cost allocation rate. 2. Compute the total costs assigned to the Wilner and Lee engagements. 3. Compute the operating income from the Wilner and Lee engagements.