In calculating chargeable ratio, which components are included in the denominator?

• A. Direct and indirect labor, plus vacation, holiday, and sick leave.
• B. Direct labor time only.
• C. Indirect labor time only.
• D. All paid time off only.

Answer: (A)

The denominator in a chargeable ratio represents the total paid time, not just the work billed to clients. That means it includes all labor time for which the firm is compensating the employee: direct labor (time spent on client work), indirect labor (time spent on non-billable or internal activities), and paid time off (vacation, holidays, sick leave). By counting everything the firm pays for, you get the full base for comparing how much of that time is chargeable to clients. For example, if someone logs 40 hours direct on client work, 15 hours of indirect or internal tasks, and 5 hours of paid time off, the denominator is 60 paid hours, and the chargeable ratio would be based on the 40 direct hours relative to those 60 paid hours. The other options omit one or more of these components, which would misstate the total paid time.