Fixed costs remain constant at $450,000 per month. During high-output months variable costs are $300,000, and during low-output months variable costs are $125,000. What are the respective high and low indirect-cost rates if budgeted professional labor-hours are 24,000 for high-output months and 5,000 for low-output months?

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Business

Cristopher Watson

17 August, 07:03

Fixed costs remain constant at $450,000 per month. During high-output months variable costs are $300,000, and during low-output months variable costs are $125,000. What are the respective high and low indirect-cost rates if budgeted professional labor-hours are 24,000 for high-output months and 5,000 for low-output months?

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Jase Hays · Answer 1

High indirect-cost rate is $31.25

Low indirect-cost rate is $115

Explanation:

It is noteworthy that the indirect cost-rate refers to the sum of variable cost per hour+fixed cost per hour

High indirect-cost rate=variable cost per hour+fixed cost per hour

High output:

variable cost per hour=total variable costs/number of hours

fixed cost per hour=Fixed costs/number of hours

variable cost per hour = ($300,000/24,000) = $12.5

fixed cost per hour = ($450,000/24000) = $18.75

high indirect cost-rate=$12.5+$18.75=$31.25

Low output:

variable cost per hour=total variable costs/number of hours

fixed cost per hour=Fixed costs/number of hours

variable cost per hour = ($125,000/5,000) = $25.00

fixed cost per hour = ($450,000/5,000) = $90

low indirect cost-rate=$25+$90=$115