A professional service firm uses a normal pricing markup on jobs that is 400% of

Question

A professional service firm uses a normal pricing markup on jobs that is 400% of direct professional labor and an overhead application rate that is 150% of direct professional labor. Budgeted operating income on a particular job is $900,000.

Required: Compute the budgeted amount of direct professional labor costs on this job:



The Ernie Company has provided information concerning its 2011 projections as follows:
Net sales $20,000,000
Fixed manufacturing costs 1,800,000
Beginning Inventory $0
Ending inventory $0
Ernie projects variable manufacturing costs of 60% of net sales. (Note-There are no changes in inventories.)

Required: Compute the projected cost of goods sold.

Explanation / Answer

Let the budgeted amount of direct professional labour cost be x Direct professional labour=400%=4x Overhead application cost=150%=1.5x Operating Income $900,000 900,000= 4x - 1.5 x 900,000= 2.5 x x = 900,000/2.5 x = 360,000 Calculation of Cost of goods Sold Finished goods inventory,January 1 $0 cost of goods manufactured: Fixed manufacturing cost 1,800,000 Variable manufacturing cost 60% on sales (20,000,000*60%=12,000,000 Total cost of goods manufactured 13,800,000 Cost of goods available for sale 13,800,000 Less:Finished goods inventory $0 Cost of goods sold 13,800,000

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