Questions:
Allocating indirect costs and computing income
Pacific, Inc., is a technology consulting firm focused on Web site development and integration of Internet business applications. The president of the company expects to incur $775,000 of indirect costs this year, and she expects her firm to work 5,000 direct labor hours. Pacific's systems consultants provide direct labor at a rate of $310 per hour. Clients are billed at 160% of direct labor cost. Last month Pacific's consultants spent 150 hours on Crockett's engagement.
Requirements
1. Compute Pacific's indirect cost allocation rate per direct labor hour.
2. Compute the total cost assigned to the Crockett engagement.
3. Compute the operating income from the Crockett engagement.