Benson & Company is an architectural firm specializing in home remodeling for private clients and new office buildings for corporate clients. Benson charges customers at a billing rate equal to 128% of the client's total job cost. A client's total job cost is a combination of (1) professional time spent on the client ($65 per hour cost of employing each professional) and (2) operating overhead allocated to the client's job. Benson allocates operating overhead to jobs based on professional hours spent on the job. Benson estimates its five professionals will incur a total of 10,000 professional hours working on client jobs during the year. (Click the icon to view the operating cost information.) Anna Levesque hired Benson to design her kitchen remodeling. A total of 20 professional hours were incurred on this job. In addition, LeVesque's remodeling job required one of the professionals to travel back and forth to her house for a total of 130 miles. The blueprints had to be copied four times because Levesque changed the plans several times. In addition, 17 hours of secretarial time were used lining up the subcontractors for the job. Read the requirements. Requirement 1. Calculate the current indirect cost allocation rate per professional hour. (Round your answer to the nearest cent.) The current indirect cost allocation rate per professional hour is $25.00 Requirement 2. Calculate the total amount that would be billed to Levesque given the current costing structure. Determine the formula, then calculate the amount that would be billed to Levesque given the current costing structure. (Round all amounts to the nearest cent.) Total cost of job X Markup percentage Amount billed to client $ 1,800.00 X 128% = $ 2,304.00 Requirement 3. Calculate the activity cost allocation rates that could be used to allocate operating overhead costs to client jobs. Determine the formula, then calculate the activity cost allocation rates that could be used to allocate operating overhead costs to client jobs. (Round the rates to the nearest cent.) Total activity cost pool + Total activity allocation base Activity cost allocation rate $ 9,000 15,000 Transportation to clients Blueprint copying $ 31,000 1,000 $ 0.60 per mile $ 31.00 per copy $ 42.00 per secretarial hour Office support $ 210,000 + 5,000 Requirement 4. Calculate the amount that would be billed to Levesque using ABC costing. Determine the formula, then calculate the amount that would be billed to Levesque using ABC costing. (Round all amounts to the nearest cent.) Total cost of job Markup percentage Amount billed to client 1300 + 500 X All operating costs other than professional salaries (travel reimbursements, copy costs, secretarial salaries, office lease, and so forth) can be assigned to the three activities. Total activity costs, cost drivers, and total usage of those cost drivers are estimated as follows: Total Activity Total Usage by Total Usage by Private Activity Cost Cost Driver Corporate Clients Clients Transporation to clients $ 9,000 Round-trip mileage to clients 4,000 miles 11,000 miles Blueprint copying 31,000 Number of copies.. 200 copies 800 copies 210,000 Office support Secretarial time 2,200 secretarial hours 2,800 secretarial hours $ 250,000 Total operating overhead 1. 2. 3. Calculate the current indirect cost allocation rate per professional hour. Calculate the total amount that would be billed to LeVesque given the current costing structure. Calculate the activity cost allocation rates that could be used to allocate operating overhead costs to client jobs. Calculate the amount that would be billed to Levesque using ABC costing. Which type of billing system is more fair to clients? Explain. 4. 5
