An accountant allocates overhead costs based on the hours worked for different clients. The accountant expects $150,000 in overhead costs during the year and plans to work 1,500 hours. Additionally, the accountant charges $40 per hour for her services. This billing rate includes her hourly fee ($40) plus an overhead recovery fee spread over 1,500 hours. However, some clients pay the accountant on a performance-based fee. In this arrangement, the accountant receives 40% of the tax savings she achieves for her clients. During the year, the accountant works 900 hours that are billable to clients and 600 hours on performance-based arrangements. She achieves $250,000 in tax savings for her clients under the performance-based arrangement. The actual overhead incurred was $155,000. What does the accountant earn during the year after expenses?

An accountant allocates overhead costs based on the hours worked for different clients. The accountant expects $150,000 in overhead costs during the year and plans to work 1,500 hours. Additionally, the accountant charges $40 per hour for her services. This billing rate includes her hourly fee ($40) plus an overhead recovery fee spread over 1,500 hours. However, some clients pay the accountant on a performance-based fee. In this arrangement, the accountant receives 40% of the tax savings she achieves for her clients. During the year, the accountant works 900 hours that are billable to clients and 600 hours on performance-based arrangements. She achieves $250,000 in tax savings for her clients under the performance-based arrangement. The actual overhead incurred was $155,000. What does the accountant earn during the year after expenses?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter7: Allocating Costs Of Support Departments And Joint Products

Section: Chapter Questions

Problem 30E: A company uses charging rates to allocate service department costs to the using departments. The...

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