PJM question #9

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    Valerie Galchenko

    Natalie:

    You are correct, billing rate consists of 1) direct labor + overhead (or overhead multiplier and break-even multiplier), and 2) target net profit on top of overhead and break even. In example above, direct labor=$16.40. 

    50.00 (billing rate) x 240 = 12,000 

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    Blane Hammerlund

    The correct answer is $36,600.

    $50 x 3.05 (Direct Salary Expense Multiplier or DSE, which is Direct Salary + Indirect Salary + Profit / Direct Salary, is the amount the firm has to charge to pay staff, overhead and make a profit).

    In the question, the firm budgeted for DD at 1000 hours or $152,500. That is $50 x 3.05 DSE x 1000 hours.

    Since the firm went over 240 hours and apparently charge the client for that... the solution is 240 hours x DSE or $36,600.

     

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    Sara Mirza

    I totally agree with Nathalie. The question has said "billing rate" not just "the rate" and the billing rate is what we charge the client and has already multiplied by the multiplier. Although low, $50 is what the question says they charge the client. It shouldn't be multiplied again for the profit and overhead.

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    Carlos Alberto Barbato

    If $152,500 is for 1000 hrs, so each billing hour is $152.50 and divided by the Net Multiplier (3.05) = $50 (hourly rate)

    Additional 240 hrs x $152.50 = $36,600.

    Yes, I know it was a tricky question, but you'll get the answer if you check the maths. I passed the PcM, too, and I learned that maths is the best way to resolve it beyond the words in this type of question.

     

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    Valerie Galchenko

    an average billing rate is $50 per hour and the billing rate is the amount we charge the client

    an hourly rate = $50.00/3.05 = $16.40 and not 152.50 

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