yes, a billable rate is what you charge the client that takes into account the direct labor cost, the overhead and a profit…right @cat.heard9?
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Yes! That’s how I’m interpreting the question. The billable rate is typically higher than the direct labor cost/hour so the firm can gain a profit.
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um, guys I just high fived myself IN THE OFFICE…haha
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well explained…thank you!
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Love it!
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Looking at the Utilization Rate numbers, can you tell the efficacy or deficiencies of a firm?
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What about a 50 hr work week?
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What is the significance of the Direct Labor Cost? How does it inform planning decisions…how would you use this info to make your firm more efficient, etc.
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not understanding why you didnt use the UR rate on table and used the raw percentage i.e Principal? i.e. UR .723 vs .72?
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Can you expand a little on what you mean by efficacy of the firm?
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Typically we judge utilization rates based on a 40 hour work week, but it is possible the question will mention that 50 hours is what to use when calculating. If the question doesn’t mention typical work week hours, assume 40/week for 52 weeks/year
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same - I got the answer wrong because of that…
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This can help inform what the billable rate should be for the firm/project. The direct labor cost is what is costs to have an employee complete a task, but then we need to consider overhead, office space, printing costs, etc, to determine how much we need to bill the client to make a profit.
Including @saradsilvestri too, since you had the same question
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I mean can you tell if the firm is managing their hours and who to work and which project based on their houraly salary
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I think what you are asking is if the utilization rate tells you how efficient the firm is being. If so, yes, sorta. It tells you how much of that person’s salary is being billed to a project and how much is indirect cost.
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This was done because the original calculations were done in excel, which doesn’t round when multiplying. On the exam, you’ll likely see ‘round to the nearest 10th’ or ‘round to the nearest whole percentage’, which will cue you to how specific your rounding should be on the question.
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This years projections will be way off!
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so salary essentially equals indirect labor + direct labor…is that right?
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I might have missed it, where did the office expenses and indirect expenses come from?
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Not exactly. That would be the breakeven rate for billing a client
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