Job Cost System Compute predetermined indirect cost allocation rate, total cost

Question

Job Cost System

Compute predetermined indirect cost allocation rate, total cost of each of the jobs listed, how much the company should charge to each client if they want to earn profits equal to 20% of sales revenue. Also please answer why they would want to assign costs to jobs.

Thanks in advance!!!

Raven Design is a website design and consulting firm. The firm uses a job cost system, in which each client is a different job, Raven Design traces direct labor, licensing costs, and travel costs directly to each job (client. It allocates indirect costs to jobs based on a pre- determined indirect cost allocation rate computed asa percentage of direct labor costs. At the beginning of the current year, managing partner Jill Herbert prepared the fol- lowing budget: Direct labor hours (professional) Direct labor costs (professional) Support staff salaries Computer leases Office supp Office rent 8,000 hours $1,600,000 $190,000 $41,000 S 23,000 S 66,000 Later that same year in November, Raven Design served several clients. Records for two clients appear here Organic Delight AllFood.com 770 hours 60 hours Direct labor hours Software licensing costs Travel costs $350 2,000 $9,000 Requirements 1. Compute Raven Design's predetermined indirect cost allocation rate for the current year Compute the total cost of each of the two jobs listed. If Raven Design wants to earn profits equal to 20% of sales revenue, how much (what total fee) should the company charge each of these two clients? Why does Raven Design assign costs to jobs? 2. 4.

Explanation / Answer

1. Predetermined indirect cost allocation rate = 320000 * 100 / 1600000=20% of direct labor costs

Per direct labor rate = 1600000 / 8000 = $200 / direct labor hour

2. total costs of :

Organic Delight = $2000 + $9000 + 770 * 200 + (770 * 200 * 20%) = $195800

AllFood.com = $350 + 60 * 200 + (60 * 200 * 20%) = $14750

3. Total fee charged to have 20% profit on sales revenue =

Organic Delight = $195800 * 1.25 = $244750

AllFood.com = $14750 * 1.25 = $18437.50

4. Raven Design assign costs to jobs because the company works on Job costing accounting system where different length and costs job works are being performed. Every job has to pass through various departments where costs direct allocation to job is difficult.

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