Background Info and Required Calculations:

Maddie Shalloway is an advertising consultant who tracks costs for her jobs using a job order costing system. During September, Shalloway and her staff worked on and completed jobs for the following clients:

Cooper Company

Winter Manufacturing

Stamen Industries

Direct Material Cost

$7,500

$14,000

$20,000

Direct Labor Cost

$5,580

$18,000

$28,350

Number of Promotions Designed

3

10

8

Direct material can be traced to each job because these costs are typically associated with specific advertising campaigns. Based on historical data, Shalloway has calculated an overhead rate of $50 per direct labor hour. The normal labor cost per hour is $40.

a. Determine the total cost for each of the advertising accounts for the month.

b. Determine the cost per promotion developed for each client. (Round to the nearest dollar.)

c. Currently Shalloway charges $8600 per promotion. She is considering moving to a cost-plus model in which she would charge a markup of 30% on total cost. Which pricing model would maximize her operating income? What are the implications for her clients if she changes her pricing model? What pricing model do you recommend?

Using the above information, writ a concise professional memo to Shalloway advocating for one of the two pricing models. Justify your decision using calculations that you embed & reference in a professional manner within your memo. Your case will be graded on both quantitative analysis (ie correct calculations), your consideration of the qualitative issues, and your ability to convey & justify your business decision in a well-written professional memo.