2.4(10 marks) Job Costing - Chapter 5

TSB Enterprises provides consulting services and uses a job costing system to accumulate the cost of client projects. Traceable costs are charged directly to individual clients.Other costs incurred by TSB that are not identifiable with specific clients are charged to jobs by using a pre-determined overhead application rate. Clients are billed for directly chargeable costs, overhead, and a markup.

TSB's vice-president of cost management, Willey Wonka, anticipates the following costs for the upcoming year:

	Cost	Percentage of Cost Directly Traceable to Clients
Professional staff salaries	$2,500,000	80%
Administrative support staff	300,000	60%
Photocopying	50,000	90%
Travel	250,000	90%
Other operating costs	100,000	50%
Total	$3,200,000

The firm's partners want to make a profit of $640,000 for the firm and plan to add a percentage markup on total costs to achieve the $640,000 target profit.

Om March 10, TSB completed consulting work for Ace Manufacturing. The following costs were incurred relative to the Ace Manufacturing consulting work:

• Professional staff salaries: $41,000
• Administrative support staff: $2,600
• Photocopying: $500
• Travel: $4,500
• Other operating costs: $1,400

Required:

1. Determine TSB's total traceable costs for the upcoming year and the firm's total anticipated overhead.

1. Calculate the predetermined overhead rate. The rate is based on total costs traceable to client jobs.

1. What percentage of cost will TSB add to each job to achieve its target profit of $640,000?

1. Determine the total cost of the ACE Manufacturing project. How much would ACE be billed for services performed?
2. Notice that only 50% of TSB's other operating cost is directly traceable to specific client projects. Cite several costs that would be included in this category and difficult to trace to clients.