PJM question #9
An architect planned 1,000 hours for the design development (DD) phase of a project with an average billing rate of $50 per hour. The project has a planned multiplier of 3.05 and a total DD phase compensation of $152,500. At the end of DD, the architect finds that an excess of 240 labor hours were needed for DD.
What is the additional project cost?
Correct $36,000
My answer: $12,000
I passed PCM already and believe that the "billing rate" is the definition of what has been billed to the client, so no need to use the multiplier. (I had a feeling thou that $50 per hour was too low..)
Anyway, can someone clarify? Thanks :)
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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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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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