Harriette Harris Hair Salon uses a costing system for all customers who have haircuts and treatments. The salon uses a pre-determined indirect cost rate for allocating indirect costs to individual customer visits, with salon operating hours used as the cost driver. In May, the salon had a budgeted allocation base of 2,000 salon operating hours. The budgeted salon indirect overhead costs for May were $92,000.

Customer Khloe Kanaan was in the salon for two hours during May. The costs directly related to Khloes two hour visit include:

Direct MaterialsDirect Labour

Cost of products used

Other supplies

$148

$120

Cost of hairdresser

$48/hour

Required (show all workings):

1. Explain the difference between direct and indirect costs, using examples.

1. Calculate the pre-determined indirect cost rate (PICR) Harriette Harris Hair Salon used for 2023.

1. Calculate the total cost incurred by Khloe Kanaans visit to the salon.

1. Assume Harriette Harris applies a cost-based pricing model to set prices to customers, adding a mark-up of 50%. What price should Harriette Harris charge Khloe Kannan for her Salon visit?