Calculate the predetermined overhead rate/Managerial Economics
KLP offers consulting services and uses a job order system to accumulate cost of client projects. Traceable expenses are charged directly to individual clients; in contrast, other costs incurred by KLP, but not identifiable with specific clients, are chraged to jobs using a predetermined overhead application rate. Clients are billed for directly chargeable costs, overhead, and a markup.
KLP anticipateds the following costs for the upcoming year:
PERCENTAGE OF COST
DIRECTLY TRACEABLE
TO CLIENTS
COST
Professional staff salaries $5,000,000 80%
Administrative support staff 600,000 50
Travel 200,000 80
Other Operating costs 200,000 20
KLP’S partners desire to make a $480,000 profit for the firm and plan to add a percentage markup on cost to achieve that figure.
On May 14, KLP completed work on a project for Lawson Manufacturing. The following costs were incurred: professional salaries, $68,000; administrative support staff, $8,900; travel, $10,500; and other operating costs, $2,600.
Required:
A) Determine KLP’S total traceable costs for the upcoming year and the firms total anticipated overhead.
B) Calculate the predetermined overhead rate. The rate is based on total costs traceable to client jobs.
C) What percentage of cost will KLP add to each job to achieve its profit target?
D) Determine the total cost of the Lawson Manufacturing project. How much would Lawson be billed for services performed?
