# Using ABC to achieve target profit, service company Refer to Exercise E19-26. Pacific desires a…

Using ABC to achieve target profit, service company Refer to Exercise E19-26. Pacific desires a 25% target net profit after covering all costs. Considering the total costs assigned to the Crockett engagement in Exercise E19-25, what would Pacific have to charge the customer to achieve that net profit? Round to two decimal places.

Exercise E19-25

Using ABC to allocate costs and compute profit, service company Refer to Exercises E19-23 and E19-24. Suppose Pacific’s direct labor rate was \$310 per hour. The Crockett engagement used the following resources last month:

Requirements

1. Compute the cost assigned to the Crockett engagement, using the ABC system.

2. Compute the operating income or loss from the Crockett engagement, using the ABC system.

Exercise E19-24

Computing ABC allocation rates, service company Refer to Exercise E19-23. The president of Pacific suspects that her allocation of indirect costs could be giving misleading results, so she decides to develop an ABC system. She identifies three activities: documentation preparation, information technology support, and training. She figures that documentation costs are driven by the number of pages, information technology support costs are driven by the number of software applications used, and training costs are driven by the number of direct labor hours worked. Estimates of the costs and quantities of the allocation bases follow:

Compute the predetermined overhead allocation rate for each activity.

Exercise E19-23

Allocating indirect costs and computing income, Service Company Pacific, Inc. is a technology consulting firm focused on website development and integration of Internet business applications. The president of the company expects to incur \$775,000 of indirect costs this year, and she expects her firm to work 5,000 direct labor hours. Pacific’s systems consultants provide direct labor at a rate of \$310 per hour. Clients are billed at 160% of direct labor cost. Last month, Pacific’s consultants spent 150 hours on Crockett’s engagement.

Requirements

1. Compute Pacific’s predetermined overhead allocation rate per direct labor hour.

2. Compute the total cost assigned to the Crockett engagement.

3. Compute the operating income from the Crockett engagement.

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