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Labor Costs in the Service Sector

Consider the following budgeted data for a client job of Bob Crachit's accounting firm. The client wants a fixed price quotation.

Direct professional labor
$20,000
Direct support labor
10,000
Fringe benefits for direct labor
13,000
Photocopying
2,000
Telephone calls
2,000
Computer equipment
6,000

Overhead is allocated at the rate of 100% of direct labor cost.

REQUIRED:
A. Prepare a schedule of the budgeted total costs for the client. Show subtotals for total direct labor costs and total costs as a basis for markup.
B. Assume that the partner's policy is to quote a fixed fee at 10% above the total costs. What fee would be quoted?
C. Explain why the listed estimates for costs might not be similar to the actual costs for the job. What factors could affect the accuracy of these estimates? List as many factors as you can.

Solution Preview

A.
Total direct labor costs = $ 43,000
Total Overhead costs = $ 10,000

Total costs before mark up= $ 53,000
Total costs after mark up = $ 86,000

B.
Fixed fee = 10% * $ 53,000 = $ ...

Solution Summary

This solution answers various questions regarding labor costs in the service sector.

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