Question

For the month of July, UP Payroll Services worked 2,100 hours for Dune Motors, 630 hours for Jake’s Charters, and 1,050 hours for Mission Hospital. UP bills clients at $121 an hour; its labor costs are $50 an hour. A total of 4,200 hours were worked in July with 420 hours not billable to clients. Overhead costs of $38,000 were incurred and were assigned to clients on the basis of direct labor-hours. Because 420 hours were not billable, some overhead was not assigned to jobs. UP had $30,900 in marketing and administrative costs. All transactions were on account.

Required:

a. What are the revenue and cost per client?

b. Prepare an income statement for July.

Answer 1

(a)

	Dune motors	Jake's charters	Mission hospital
Revenue	$254,100	$76,230	$127,050
Labor	$105,000	$31,500	$52,500
Overhead	$19,000	$5,700	$9,500
Margin	$130,100	$39,030	$65,050

Here margin = Revenue - Labor - Overhead

Explanation:

	Dune motors	Jake's charters	Mission hospital
Hours worked (a)	2100	630	1050
Total hours (b)	4200	4200	4200
(c)=(a)/(b)	0.5	0.15	0.25
(c) x $38,000	$19,000	$5,700	$9,500

(b)

UP Payroll services
Income statement
For the month ending July 31
Revenue from clients		$457,380
Less: Cost of services to client
Labor	$189,000
Overhead	$34,200
Total cost of services to clients		$223,200
Gross margin		$234,180
Less: other costs
Labor	$21,000
Overhead (420/4200 x $38,000)	$3,800
Marketing and administration costs	$30,900
Total other costs		$55,700
Operating profit		$178,480

Gross Margin = revenue from clients - cost of services to clients

Total other cost = Labor + Overhead + Marketing and administration costs

Operating profit = Gross margin - Total other costs