Thomas Design is an interior design firm. The firm uses a job cost system, in which each client is a different job. Thomas Design traces direct labor, licensing costs, and travel costs directly to each job (client). It allocates indirect costs to jobs based on a predetermined indirect cost allocation rate computed as a percentage of direct labor costs.

At the beginning of the current year, managing partner Sarah Miracle prepared the following budget:

Direct labor hours (professional) …………………………………………. 10,000 hours

Direct labor costs (professional) ……………………………………………. $1,400,000

Support staff salaries …………………………………………………………….. $ 170,000

Computer leases …………………………………………………………………….. $ 49,000

Office supplies ……………………………………………………………………….. $ 29,000

Office rent ……………………………………………………………………………… $ 60,000

Later that same year in November, Thomas Design served several clients. Records for two clients appear here:

Organic Foods AllNews.com

Direct labor hours……………………………….. 730 hours 25 hours

Software licensing costs………………………………… $2,700 $400

Travel costs……………………………………………………. $7,000 $ 0

Requirements

1. Compute Thomas Design’s predetermined indirect cost allocation rate for the current year.

2. Compute the total cost of each of the two jobs listed.

3. If Thomas Design wants to earn profits equal to 30% of sales revenue, how much (what total fee) should the company charge each of these two clients?

4. Why does Thomas Design assign costs to jobs?



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