Advising Services Home Association (ASHA) is a consulting firm which offers professional guidance, advice, and solutions to different home-based businesses that experience any problem on which they might need help. ASHA provides consulting services in the 10 largest markets in the US and uses a job-order costing system to accumulate the cost of client projects. Traceable costs are charged directly to individual clients; in contrast, other costs incurred by ASHA, but not identifiable with specific clients, are charged to jobs by using a predetermined overhead application rate. Clients are billed for directly chargeable costs, overhead, and a markup.

Miley Danke, ASHAs controller, anticipates the following costs for 20X7:

	Cost	Percentage of Cost Directly Traceable to Clients
Professional staff salaries	$ 3,750,000	80%
Administrative support staff	$ 450,000	60%
Photocopying	$ 75,000	90%
Travel	$ 375,000	90%
Other operating costs	$ 150,000	50%
Total	$ 4,800,000

The firms partners are planning to add a percentage markup on total cost to achieve that figure for 20X7 and they want to make a $960,000 profit for the firm.

On February 6, 20X7, ASHA completed work on a new project for Innovation Products Inc. Costs incurred: professional staff salaries, $61,500; administrative support staff, $3,900; photocopying, $750; travel, $6,750; and other operating costs, $2,100.

Required:

1. Determine ASHAs total traceable costs for 20X7 and the firms total anticipated overhead.

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

3. What percentage of cost will the firm add to each job to achieve its profit target?

4. Determine the total cost of the Innovation Product Inc. project. How much would Innovation be billed for services performed?

5. Notice that only 50 percent of ASHAs other operating cost is directly traceable to specific client projects. Highlight several costs that would be included in this category and difficult to trace to clients.

6. Notice that 80 percent of the professional staff cost is directly traceable to specific client projects. Cite several reasons that would explain why this figure isnt 100 percent.