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Labor Costs in the Service Sector

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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
Direct support labor
Fringe benefits for direct labor
Telephone calls
Computer equipment

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

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.

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Solution Preview

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

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

Solution Summary

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