Use job costing at an advertising agency (Learning Objective 6)

Adnet.com is an Internet advertising agency. The firm uses a job cost system in which each client is a different “job.” Adnet.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 2008, managing partner Ricky Buena prepared a budget:

In January 2008, Adnet.com served several clients. Records for two clients appear here:

Requirements 1. Compute Adnet.corn’s predetermined indirect cost allocation rate for 2008.
2. Compute the total cost of each job.
3. If Adnet.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 Adnet.com assign costs to jobs?

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Direct labor hours (professional).. Direct labor costs (professional). Support staff salaries............. Rent and utilities....... 17,500 hours $1,750,000 305,000 95,000 15,000 Lease payments on computer hardware........... 285,000 Supplies................