Reference no: EM133127860
Question - Kanal Design is a website design and consulting firm. The firm uses a job costing system in which each client is a different "job". Kanal Design traces direct labour, licensing costs and travel costs directly to each job. It allocates indirect costs to jobs based on a predetermined overhead rate computed as a percentage of direct labour costs.
At the beginning of the current year, managing partner Richard Latour prepared the following budget:
Direct labour hours (professional) 6,250 hours
Direct labour costs (professional) $1,000,000
Support staff salaries $125,000
Computer leases $45,000
Office supplies $25,000
Office rent $55,000
Later that same year in November, Kanal Design served several clients. Records for two clients appear as follows:
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Acme Bakery
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Greensavers
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Direct labour hours
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780 hours
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55 hours
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Software licensing costs
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$2,500
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$500
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Travel costs
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$10,000
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$0
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Required -
1. Compute Kanal 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 Richard Latour wants to earn profits equal to 20% of sales revenue, how much (what total fee) should he charge each of these two clients?
4. Why does Kanal Design assign costs to jobs?