How is the Direct Salary Expense (DSE) multiplier calculated?

• A. Total direct salary divided by Total target revenue.
• B. Total direct and indirect salary expenses + Total overhead + Total profit / Total direct salary.
• C. (Total direct and indirect salary expenses + Total overhead + Total profit) / Total direct salary.
• D. Total overhead divided by Total direct salary.

Answer: (A)

Direct Salary Expense multiplier is the ratio that shows how much of the target revenue is consumed by direct labor. It is calculated by dividing total direct salary expense by the total target revenue. This keeps the focus on the direct labor cost relative to the revenue goal, which is why it’s the appropriate measure for pricing and staffing decisions. If you include indirect salaries, overhead, or profit in the numerator, you’re mixing in costs that aren’t direct salaries, which doesn’t reflect the direct labor share of revenue. For example, if direct salaries total $120,000 and the target revenue is $200,000, the multiplier is 0.6, meaning direct labor accounts for 60% of the target revenue.