Ace Architects Employs Two Architects,each Having a Different Area of Specialization.Caitlin

question 18

Essay

Ace Architects employs two architects,each having a different area of specialization.Caitlin specializes in industrial commercial construction and Zachary specializes in residential construction.Ace expects to incur total overhead costs of $779,625 during the year and applies overhead based on annual salary costs.Caitlin is a senior partner,her annual salary is $168,750,and she is expected to bill 2,000 hours during the year.Zachary is a senior associate,his annual salary is $91,125,and he is expected to bill 1,800 hours during the year.
a.Calculate the predetermined overhead rate.
b.Assuming that the hourly billing rate should be set to cover the total cost of services plus a 20% markup,compute the hourly billing rates for Caitlin and Zachary.

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Definitions:

Implicit Cost

Refers to the opportunity costs that are not directly paid for in money but represent the loss of value from using resources for a particular venture instead of their best alternative use.

Explicit Cost

Direct, out-of-pocket payments for goods or services used in the production of a product or offering of a service.

Sole Proprietor

An individual who owns and operates a business alone, bearing all the responsibilities and benefits of the business.

Short Run

A timeline in economics where at least one factor of production is fixed, constraining the ability to adjust to changing economic conditions.