Question

Fixed costs remain constant at​ $450,000 per month. During​ high-output months variable costs are​ $300,000, and during​ low-output months variable costs are​ $125,000. What are the respective high and low​ indirect-cost rates if budgeted professional​ labor-hours are​ 24,000 for​ high-output months and​ 5,000 for​ low-output months?

Answer 1

High indirect-cost rate is $31.25

Low indirect-cost rate is $115

Step-by-step explanation:

It is noteworthy that the indirect cost-rate refers to the sum of variable cost per hour+fixed cost per hour

High indirect-cost rate=variable cost per hour+fixed cost per hour

High output:

variable cost per hour=total variable costs/number of hours

fixed cost per hour=Fixed costs/number of hours

variable cost per hour=($300,000/24,000)=$12.5

fixed cost per hour =($450,000/24000)=$18.75

high indirect cost-rate=$12.5+$18.75=$31.25

Low output:

variable cost per hour=total variable costs/number of hours

fixed cost per hour=Fixed costs/number of hours

variable cost per hour=($125,000/5,000)=$25.00

fixed cost per hour =($450,000/5,000)=$90

low indirect cost-rate=$25+$90=$115