Part 1: Single Indirect Cost Pool

Blue Skies LLC is a consulting firm specializing in environmental risk challenges for its corporate clients and a work-life balance for its employees (e.g., employees average 12 weeks of vacation per year). Blue Skies employs 25 professionals (5 Statistical Analysts and 20 Environmental Scientists) who work directly with clients. For the current year, the average budgeted total compensation per professional is $104,000 and each professional is budgeted to work 1,600 annual billable hours to clients. All professional labor costs are included in a single direct-cost category and traced to jobs on a per-hour basis.

All of Blue Skies other costs (i.e., besides professional labor costs) are included in a single indirect cost pool (general support) and allocated to jobs using professional labor hours as the allocation basis. The budgeted level of indirect costs for the current year is $2,200,000.

1. Compute the annual budgeted direct-cost rate per hour of professional labor.

2. Compute the annual budgeted indirect-cost rate per hour of professional labor.

3. Blue Skies is considering bidding on two environmental consulting jobs. Prepare a cost estimate for each job.

a. Air pollution prevention analysis work for Park City Tours, Inc., which requires 100 budgeted hours of professional labor.

b. Soil and water pollution cleanup analysis work for Telluride Mining, Inc., which requires 150 budgeted hours of professional labor.

Part 2: Multiple Indirect Cost Pools

The finance team at Blue Skies has just completed a review of its job-costing system. This review included a detailed analysis of how past consulting jobs used the firms resources and interviews with personnel about what factors drive the level of indirect costs. The finance team concluded that a system with two direct-cost categories (professional Statistical Analyst labor and professional Environmental Scientist labor) and two indirect cost categories (Travel/Administrative support and Hardware/Software support) would yield more accurate job costs. Budgeted information for the current year related to the two direct-cost categories is as follows:

	Prof. Stat. Analyst Labor	Prof. Env. Scientist Labor
Nuber of Professionals	5	20
Hours of billable time per professional	1,600 per year	1,600 per year
Total compensation (average per professional)	$200,000	$80,000

Budgeted information for the current year relating to the two indirect-cost categories is as follows:

	Travel/Admin Support	Hardware/Software Support
Total Costs	1,800,000	400,000
Cost-allocation base	Professional labor hours	Statistical Analyst Labor Hours

1. Compute the annual budgeted direct-cost rates for (a) professional Statistical Analysts and (b) professional Environmental Scientists.

2. Compute the annual budgeted indirect cost rates for (a) Travel/Administrative support and (b) Hardware/Software support.

3. Compute the budgeted costs for the Park City Tours and Telluride Mining jobs, given the following information:

	Park City Tours	Telluride Mining
Statistical Analysts	70 hours	20 hours
Environmental Scientists	30 hours	130 hours

4. Comment on the results in requirement 3. Why are the job costs different from those computed under the single cost pool system?

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