Question
GSE provides consulting services throughout the mid-Atlantic region and uses a job-order costing system to accumulate the costs of client projects. Traceable costs are charged
GSE provides consulting services throughout the mid-Atlantic region and uses a job-order costing system to accumulate the costs of client projects. Traceable costs are charged directly to individual clients, in contrast, other costs incurred by GSE, 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.
GSE's controller, Brianna Crozer, anticipates the following costs for 2017:
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 firm's partners desire to make a $960,000 profit for the firm and plan to add a percentage markup on total cost to achieve that figure for 2017.
On February 6, 2017, GSE completed work work on a project for dominion Products Corporation. The following costs were 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 GSE's total traceable costs for 2017 and the firm's total anticipated overhead
2) Calculate the predeteremined 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?
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