Job-Order Costing in a Consulting Firm

SWB Consulting provides consulting services throughout Canada 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 SWB, 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 mark-up.

SWB's director of cost management, Brian Dube, anticipates the following costs for the upcoming year:

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 mark-up on total cost to achieve that figure.

On March 10, SWB completed work on a project for Donnelly Manufacturing. 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 SWB's total traceable costs for the upcoming year and the firm's total anticipated overhead.
2. Calculate the predetermined overhead rate. The rate is based on total costs traceable to client jobs.
3. What percentage of the cost will SWB add to each job to achieve its profit target?
4. Determine the total cost of the Donnelly Manufacturing project. How much would Donnelly be billed for services performed?
5. Notice that only 50 percent of SWB'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.
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 isn't 100 percent.