Question

Question:Refer to Exercise E19-26. Western desires a 20% target net profit after covering all costs. Considering the total costs assigned to the Halbert engagement in Exercise E19-26, what would Western have to charge the customer to achieve that net profit? Roundto two decimal places.

Short answer

Targeted service charge:$166,464

Step-by-step solution

Step-by-Step-SolutionStep1: Cost assigned to Halbert

$$\begin{gathered} Directlaborcost=Totaldirectlaborhours\times Laborrate \\ =170\times \$280 \\ =\$47,600 \end{gathered}$$

$$\begin{gathered} DocumentationPreprationCost=Predetermiendoverheadallocationrate\times No.ofpages \\ =\$50\times 310 \\ =\$15,500 \end{gathered}$$

$$\begin{gathered} TSCost=Predetermiendoverheadallocationrate\times No.ofapplicationsused \\ =\$210\times 80 \\ =\$16,800 \end{gathered}$$

$$\begin{gathered} TrainingCost=Predetermiendoverheadallocationrate\times No.ofdirectlaborhours \\ =\$106\times 170 \\ =\$18,020 \end{gathered}$$

Computation of target service charge

As the targeted net profit is 20% of sales, So the operating cost percent to sales would be