# 1. Why might a company prefer the adjusted allocation rate approach over a proration approach to…

1. Why might a company prefer the adjusted allocation rate approach over a proration approach to under- or over-allocated indirect costs? 2. Computing indirect-cost rates, job costing (20–30 minutes) Michel Scaramouche, the president of Tax-Assistance SA, is examining alternative ways to calculate indirect-cost rates. He collects the following information from the budget for the year: ● Budgeted variable indirect costs: €10 per hour of professional labour time ● Budgeted fixed indirect costs: €50 000 per quarter. The budgeted billable professional labour-hours per quarter are: Scaramouche pays all tax professionals employed by Tax-Assistance on an hourly basis (€30 per hour, including all fringe benefits). Tax-Assistance’s job-costing system has a single direct-cost category (professional labour at €30 per hour) and a single indirect-cost pool (oce support that is allocated using professional labour-hours). Tax-Assistance charges clients €65 per professional labour-hour. Required 1 Calculate budgeted indirect-cost rates per professional labour-hour using: a Quarterly budgeted billable hours as the denominator b Annual budgeted billable hours as the denominator. 2 Calculate the operating profit for the following four customers using: a Quarterly-based indirect-cost rates b An annual indirect-cost rate: ● Jean-Baptiste Roquelin: 10 hours in February ● Violette Leduc: 6 hours in March and 4 hours in April ● Alphonse Dudet: 4 hours in June and 6 hours in August ● Francine Leclerc: 5 hours in January, 2 hours in September and 3 hours in November. 3 Comment on your results in requirement 2.

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