Question

Skylark Design is an interior design firm. The firm uses a job cost system in which each client is a different? "job." Skylark 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.

Direct labor hours (professional) . . . . . . . 10,000 hours
Direct labor costs (professional) . . . . . . . $ 1,300,000
Support staff salaries . . . . . . . . . . . . . . . . $ 160,000
Computer lease payments. . . . . . . . . . . . $ 48,000
Office supplies . . . . . . . . . . . . . . . . . . . . . $ 28,000
Office rent. . . . . . . . . . . . . . . . . . . . . . . . . $ 63,000

Food Coop GoGreen.com
Direct labor hours . . . . . . . . . . 730 hours 35 hours
Licensing costs . . . . . . . . . . . . $ 2,500 $ 150
Travel costs . . . . . . . . . . . . . . . $ 6,000 $ 0

1.Compute

SkylarkSkylark

?Design's predetermined indirect cost allocation rate for the current year?

2. Compute the total cost for each job?

3. If Judi wants to earn profits up to %50 of service revenue, what fee should she charge of each of these 2 clients?

4. Why does Skylark Design assign cost to jobs?

Answer 1

1 )

direct labor rate = total direct labor cost / total direct labor hours

= 1300000 / 10000

= 130 per dirct labor hour

predetermined indirect cost allocation rate = total overhead / total direct labor hours

= 160000 + 48000+ 28000 + 63000 / 10000

= 299000 /10000

= 30 per direct labor hour

2 ) calculation of total cost

food coop

direct labor cost 730 * 130 = 94900

add;overhead costs 730 * 30 = 21900

add;software licensing costs = 2500

add; travel cost = 6000

total cost =125300

gogreen.com

direct labour cost 35 * 130 = 4550

add; overhead cost 35 * 30 = 1050

add; software licensing cost = 150

add; travel costs = 0

total cost = 5750

3 ) calculation of fees

fees = total cost / 50 %

food coop

= 125300 / 50 %

= 250600

gogreen.com

= 5750 / 50 %

= 11500

4 )

skylark design assign cost to jobs to determine the real profit from each job