Solucions SA, an engineering consulting firm, specialises in analysing the structural causes of major building catastrophes. Its job-costing system in 2023 had a single direct-cost category (professional labour) and a single indirect-cost pool (general support). The allocation base for indirect costs is professional labour costs. Actual costs for 2023 were:

The firm’s data-processing capabilities now make it feasible to trace these costs to individual jobs. The managing partner is considering whether more costs than just professional labour should be traced to each job as a direct cost. In this way, the firm would be better able to justify billings to clients.
In late 2023, arrangements were made to expand the number of direct-cost categories and to trace them to seven client engagements. Two of the case records showed the following:

Required 1 Present an overview diagram of the 2023 job-costing system. What was the actual indirect-cost rate per professional labour-euro?
2 Assume that the €55 million of costs included in the 2023 general-support indirect-cost pool were reclassified as direct costs. The result is a system with five direct-cost categories. Calculate the revised indirect-cost rate as a percentage of:
a professional labour costs b total direct costs.
3 Calculate the total costs of jobs 304 and 308 using:
a the 2023 costing system with a single direct-cost category and a single indirect-cost pool (professional labour costs as the allocation base)
b a costing system with five direct-cost categories and a single indirect-cost pool (professional labour costs as the allocation base)
c a costing system with five direct-cost categories and a single indirect-cost pool (total direct cos as the allocation base).
4 Assume that clients are billed at 120% of total job costs (that is, a mark-up on cost of 20%).
Calculate the billings in requirement 3 for jobs 304 and 308 for the (a), (b) and (c) costing systems.
5 Which method of job costing in requirement 3 do you favour? Explain.

Transcribed Image Text:

Direct costs Professional labour Indirect costs General support Total costs 100 million 190 million 290 million The following costs were included in the general-support indirect-cost pool: Technical specialists' costs Telephone/fax machine Computer time Photocopying Total costs 8 million 6 million 37 million 4 million 55 million