Chapter 4, Problem 4.26E

Job costing, consulting firm. Frontier Partners, a management consulting firm, has the following condensed budget for 2017:

Revenues		$50,000,000
Total costs:
Direct costs
Professional Labor	$ 20,000,000
Indirect costs
Client support	25,000,000	45,000,000
Operating income		$ 5,000,000

Frontier has a single direct-cost category (professional labor) and a single indirect-cost pool (client support). Indirect costs are allocated to jobs on the basis of professional labor costs.

1. 1. Prepare an overview diagram of the job-costing system. Calculate the 2017 budgeted indirect-cost rate for Frontier Partners.

  Required

1. 2. The markup rate for pricing jobs is intended to produce operating income equal to 10% of revenues. Calculate the markup rate as a percentage of professional labor costs.
2. 3. Frontier is bidding on a consulting job for Sentinel Communications, a wireless communications company. The budgeted breakdown of professional labor on the job is as follows:

Professional Labor Category	Budgeted Rate per Hour	Budgeted Hours
Director	$200	9
Partner	100	24
Associate	50	100
Assistant	30	220

Calculate the budgeted cost of the Sentinel Communications job. How much will Frontier bid for the job if it is to earn its target operating income of 10% of revenues?