Question

Kushner ​& Company is an architectural firm specializing in home remodeling for private clients and new office buildings for corporate clients. Kushner charges customers at a billing rate equal to 130​% of the​ client's total job cost. A​ client's total job cost is a combination of​ (1) professional time spent on the client ​($ 63 per hour cost of employing each​ professional) and​ (2) operating overhead allocated to the​ client's job. Kushner allocates operating overhead to jobs based on professional hours spent on the job. Kushner estimates its five professionals will incur a total of​ 10,000 professional hours working on client jobs during the year

Answer 1

the question is incomplete so I looked for a similar question:

Besides the missing information, we are told that Li's job required 25 professional hours, 125 miles of travelling, 4 blueprint copies, and 15 secretarial hours.

total overhead = $233,000

total professional hours = 10,000

• predetermined overhead allocation rate = $233,000 / 10,000 = $23.30 per professional hour

cost of Li's job:

professional hours = 25 x $63 = $1,575

allocated overhead = 25 x $23.30 = $582.50

total = $2,157.50

• billing to Mr. Li = $2,157.50 x 1.3 = $2,804.75

if they used ABC costing, then allocation rates would be:

• cost per mile = $6,000 / 15,000 miles = $0.40 per mile driven
• cost per blueprint copy = $32,000 / 1,000 = $32 per blueprint copy
• cost per secretarial hour = $195,000 / 5,000 = $39 per hour

if ABC costing was used, the cost of Li's job would have been:

professional hours = 25 x $63 = $1,575

125 miles x $0.40 = $50

4 blueprint copies x $32 = $128

15 secretarial hour x $39 = $585

total cost = $2,338

• billing to Mr. Li = $2,338 x 1.3 = $3,039.40

ABC costing is more exact, and therefore, it is more fair to customers (and the company also) since customers are charged based on what the company really spent on serving them.