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We provide strategic consulting services. In 2011, we completed a consulting engagement for Clarent Corporation. We use normal absorption costing, with corporate overhead costs allocated to engagements using engagement revenues as the allocation base. The engagement revenues for Clarent was $3,325,000. The engagement expenses for Clarent was $1,219,990. Our estimated total 2011 engagement revenues equaled $373,000,000. What was our total 2011 estimated corporate overhead?

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Answer:

Estimated manufacturing overhead rate=  $0.00327 per engagement revenue.

Explanation:

We use normal absorption costing, with corporate overhead costs allocated to engagements using engagement revenues as the allocation base. The engagement expenses for Clarent was $1,219,990. Our estimated total 2011 engagement revenues equaled $373,000,000.

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Estimated manufacturing overhead rate= 1,219,990/373,000,000=  0.00327 per engagement revenue.

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