In the example, if an architect is paid $25/hour and billed at $100/hour, what is the break-even multiplier?

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Multiple Choice

In the example, if an architect is paid $25/hour and billed at $100/hour, what is the break-even multiplier?

Explanation:
Break-even multiplier is the factor you apply to direct labor costs to cover all firm costs, including overhead, and still break even. Here, the direct labor cost is $25 per hour. If overhead is equal to the direct labor cost (100%), the total cost per hour the firm must cover is $25 + $25 = $50. The multiplier is that total cost divided by the direct pay: 50 / 25 = 2.0. So the break-even multiplier is 2.0. The fact that the architect is billed at $100/hour shows the actual billing rate is higher than break-even, which means there would be profit beyond breaking even under this overhead assumption.

Break-even multiplier is the factor you apply to direct labor costs to cover all firm costs, including overhead, and still break even. Here, the direct labor cost is $25 per hour. If overhead is equal to the direct labor cost (100%), the total cost per hour the firm must cover is $25 + $25 = $50. The multiplier is that total cost divided by the direct pay: 50 / 25 = 2.0. So the break-even multiplier is 2.0. The fact that the architect is billed at $100/hour shows the actual billing rate is higher than break-even, which means there would be profit beyond breaking even under this overhead assumption.

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