Optimum Health Inc. provides diet, fitness, and nutrition services to clients wh

Question

Optimum Health Inc. provides diet, fitness, and nutrition services to clients who want a healthier lifestyle. The company customizes a program for each client based on their individual goals that includes diet recommendations (prepackaged food and supplements) nutrition counseling, and guided fitness (personal training). The company uses a modified job order cost system that keeps track of the cost of the food, vitamins, and nutritional supplements the company provides to each client, as well as the amount of time nutrition and fitness consultants spend with each client. Optimum applies all indirect operating costs (e.g., rent, utilities, and management salaries) as a percentage of the consultant's labor cost. During the most recent year, the fim estimated that it would pay $140,000 to its consultants and incur indirect operating costs of $210,000. Actual consultant labor costs were $155,000 and actual indirect operating costs were $200,000. The cost records for three of Optimum's clients are summarized below Food and nutritional supplements Nutritional counseling ($14 per hour) Personal fitness training ($19 per hour) Indirect operating costs JudyTomElizabeth S600 S 1.100 S 400 168 760 140 380 280 570 Required: 1. Compute the predetermined overhead rate Predetermined Overhead Rate 2. Determine the total cost of serving each client Judy TomElizabeth Total Cost of Serving cost Clients are charged $40 per hour for consulting services (ooth nutrition counseling and personal training) Determine the profitability of each client 3. Assume the company charges clients an up-front fee of $340. Food and nutritional supplements are priced at 25 percent above Elizabeth om Judy Profitability

Explanation / Answer

Solution 1:

Predetermined overhead rate = Estimated indirect operating cost / Estimated consultant labor cost

= $210,000 / $140,000 = 150%

Solution 2:

Solution 3:

Computation of cost of serving each client Particulars Judy Tom Elizabeth Food and nutritional supplements $600.00 $1,100.00 $400.00 Consultant labor cost: Nutritional counseling $140.00 $280.00 $168.00 Personal fitness training $380.00 $570.00 $760.00 Total consultant labor cost $520.00 $850.00 $928.00 Overhead applied (150% of consultant labor cost) $780.00 $1,275.00 $1,392.00 Cost of serving each client $1,900.00 $3,225.00 $2,720.00

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