Chapter 19: Q.19-11SE (page 1067)

Refer to Short Exercise S19-10. Haworth desires a 20% target operating income after covering all costs. Considering the total costs assigned to the Client 76 job in Short Exercise S19-10, what would Haworth have to charge the customer to achieve that operating income? Round to two decimal places.

Expert verified

For targeted operating income service charge should be $20,343.75

Step by step solution

Targeted operating income is 20%

So, the cost to sales percent should be

$cost - sales percent = 100 - operating income percent = 100 - 20 = 80 %$

$service charge = \frac{total cost}{cost - saless percent} = \frac{$ 16, 275}{0.8} = $ 20, 343.75$

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Activity	Estimated cost	Allocation Base	Estimated quantity of allocation base	Predetermined Overhead allocation rate
Site visits	\) 45,000	Number of visits	900 visits	\( 50 per visit
Documentation Preparation	122,500	Number of pages	3,500 Pages	\) 35 per page
Total Indirect costs	\( 167,500

Activity	Budgeted Cost of Activity	Allocation Base	Predetermined Overhead Allocation Rate

Materials handling	\( 240,000	Number of parts	\)1.00
Assembly	3,500,000	Number of assembling direct labor hours	17.00
Finishing	190,000	Number of finished units*	4.50

Product	Total Units Produced	Total Direct materials Costs	Total Direct Labor Costs	Total Number of Parts	Total Assembling Direct Labor Hours

Standard bookcase	7,000	\(91,000	\)105,000	28,000	10,500
Unfinished bookcase	7,500	82,500	75,000	22,500	7,500