Question

Amy Andrews is a CPA who works as a managerial accounting consultant for a variety of firms. To determine her hourly rate, Amy uses a cost-plus pricing system, which she updates each year. The hourly cost of her assistant (including taxes and benefits) is $19, the hourly cost of her office space is $5, the hourly cost of her marketing and other overhead materials is $7, and Amy's own hourly salary (again, including taxes and benefits) is $79. Amy adds a 20% premium to her costs. What is her hourly rate using a cost-plus pricing strategy?

Multiple Choice

$132

$117

$110

$130

Answer 1

Using a cost-plus pricing strategy, Amy's hourly rate is $132. This rate covers her costs and adds a profit margin of 20% to her services.

The costs included in the calculation are:

Assistant cost: This includes the hourly cost of Amy's assistant, including taxes and benefits, which is $19.

Office space cost: This represents the hourly cost of Amy's office space, which is $5.

Overhead materials cost: This includes the hourly cost of marketing and other overhead materials, which amounts to $7.

Amy's salary: This represents Amy's own hourly salary, including taxes and benefits, which is $79.

To determine Amy's hourly rate using a cost-plus pricing strategy, we need to calculate the total cost and then add the premium.

Total cost per hour = Assistant cost + Office space cost + Overhead materials cost + Amy's salary

Total cost per hour = $19 + $5 + $7 + $79 = $110

Hourly rate with 20% premium = Total cost per hour + (20% of Total cost per hour)

Hourly rate = $110 + (0.20 * $110) = $110 + $22 = $132

Therefore, Amy's hourly rate using a cost-plus pricing strategy is $132.

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