Skylark.com is an internet advertising agency. The firm uses a job cost system in which each client is a different "job." Skylark.com traces direct labor, software licensing costs, and travel costs directly to each job (client). The company 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 Ricky Beuna prepared a budget:
Direct labor hours (professional).......................................................... 17,400 hours
Direct labor costs (professional)............................................................. $2,610,000
Support staff salaries................................................................................ $ 140,000
Rent and utilities........................................................................................ $ 95,000
Supplies................................................................................................... $ 363,200
Lease payments on computer hardware.................................................... $ 63,000
During January of the current year, Skylark.com served several clients. Records for two clients appear here:
DreamVacation.com Port Greensberg
Golf Resort
Direct labor hours.................................................710 hours......................40 hours
Software licensing costs............................................$2,200...........................$300
Travel costs...............................................................$7,000.............................$ 0
Requirements
1. Compute Skylark.com's predetermined indirect cost allocation rate for the current year based on direct labor hours.
2. Compute the total cost of each job.
3. If Skylark.com wants to earn profits equal to 20% of sales revenue, how much (what total fee) should it charge each of these two clients?
4. Why does Skylark.com assign costs to jobs?