Bairstow Consulting Ltd offers a range of IT consulting services. The company’s service costing system estimates the cost of each consulting job by accumulating costs of the professional labour that works or the job plus a charge for overhead. The cost of professional labour is charged to jobs using the following three rates:
IT trainee……………………………………..$30 per hour
IT graduate……………………………………$75 per hour
IT senior consultant…………………………$225 per hour
The predetermined overhead rate is based on professional labour costs, which are budgeted to be $663,600 for the current year. The estimated overhead costs for the current year are budgeted to be:
Management salaries……………………………………………$735,000
Salaries of clerical and reception staff……………………………285,000
Depreciation on IT hardware and software………………………240,000
Stationery………………………………………………………….22,500
Telecommunications……………………………………………….31,500
Insurance…………………………………………………………180,000
Depreciation on office fixtures and fittings………………………11,250
Rent……………………………………………………………….90,750
Electricity…………………………………………………………39,525
Council rates………………………………………………………23,475
During the month of June the company provided three services, which consumed the following quantities of professional labour (in hours):
Required:
1. Calculate the predetermined overhead rate to be used at Bairstow Consulting.
2. Calculate the cost of the three services.
3. How might the management of Bairstow Consulting use this information?
4. How would Bairstow’s approach differ if the firm used a billing rather than a costing system?
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