The architectural firm has calculated the following financial projections:
Annual hours for 8 billable employees = 16,000 hours
Annual payroll = $715,000
Annual overhead = $380,000
Firm is targeting 20% profit.
What is the hourly billing rate? Round answer up to the nearest whole dollar amount.
Is the correct answer $83/hour or $86/hour?
Option 1:
Step 1: Calculate hourly payroll billing rate: $715,000 / 16,000 hours = $44.69/hour
Step 2: Calculate hourly overhead billing rate: 380,000 / 16,000 hours = 23.75/hour
Step 3: Calculate total hourly billing rate: $44.69 + $23.75 = 68.44/hour
Step 4: Calculate hourly profit billing rate: 68.44 X .20 = 13.69/hour
Step 5: Calculate total billing rate with profit: 68.44 + $13.69 = 82.13/hour
Round up to 83/hour.
Option2:
Step 1: Calculate hourly payroll billing rate: $715,000 / 16,000 hours = $44.69/hour
Step 2: Calculate hourly overhead billing rate: 380,000 / 16,000 hours = 23.75/hour
Step 3: Calculate total hourly billing rate: $44.69 + $23.75 = $68.44/hour
Step 4: Calculate total billing rate with profit: $68.44 : o.8=85.55
Round up to $86/hour