In the example, utilization rate is defined as which of the following?

In the example, utilization rate is defined as which of the following?

• A. Direct salary divided by total salary.
• B. Total salary divided by direct salary.
• C. Total revenue divided by total salary.
• D. Direct salary plus overhead divided by total salary.

Answer: (A)

Utilization rate shows how much of the payroll is tied to direct, billable work. It’s calculated by taking the direct salary and dividing it by the total salary (which includes direct pay plus overhead). For example, if direct salary is 70,000 and overhead is 30,000, the utilization rate is 70,000 / 100,000 = 0.70, or 70%. This tells you what portion of compensation goes to client-focused work. The other options don’t fit because they either invert the ratio, mix revenue with payroll, or cancel out to a trivial value (direct salary plus overhead divided by total salary would equal 1).

Utilization rate shows how much of the payroll is tied to direct, billable work. It’s calculated by taking the direct salary and dividing it by the total salary (which includes direct pay plus overhead). For example, if direct salary is 70,000 and overhead is 30,000, the utilization rate is 70,000 / 100,000 = 0.70, or 70%. This tells you what portion of compensation goes to client-focused work. The other options don’t fit because they either invert the ratio, mix revenue with payroll, or cancel out to a trivial value (direct salary plus overhead divided by total salary would equal 1).