The Federal government (and state and local governments as well) calculate billable rate as: Billable Rate...

The Federal government (and state and local governments as well) calculate billable rate as:

Billable Rate = Wage Rate + (Approved Overhead + Indirect Costs) Factor x (Wage Rate)

Given the following business costs for the previous year submitted for review and approval to a Federal agency:

Expense	Cost
Direct Labor	$200,000
Vacation pay, profit sharing, health insurance, sick pay	$140,000
Advertising Labor	$17,000
Office Supplies	$25,000
Insurance	$35,000
Rent	$40,000
Entertainment	$14,000
Travel (after required adjustments)	$22,000
Taxes (after required adjustments)	$28,000
Utilities	$12,000

a) Determine the approval overhead for this business

b) Determine the billable rate for an engineer that is paid $50/hour.

Expert Solution

a) The approved overhead includes all cost on the income statement except the direct labor, or direct expenses. Thus overhead includes rent, taxes, advertising, insurance, interest, legal, telephone bills, travel expense, utilities etc.

The approval overhead for this business thus include everything except direct labor i.e. vacation stay, utilities, travel, taxes, entertainment, rent, insurance, office supplies, advertising labor. Thus, the approved overhead for this business is sum of all these which equals to $333,000.

b) The billable rate for an engineer that is paid $50/hour will be:

Billable Rate = Wage Rate + (Approved Overhead + Indirect Costs) Factor x (Wage Rate)

Wage rate $50

Approved overhead= $333,000

Indirect cost= 0

Therefore,Billable Rate = 50 + 333,000*50

= 50 + 16,650,000

= $16,650,050

Rahul Sunny answered 2 years ago

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