Kanal Design is a website design and consulting firm. The firm uses a job costing system in which each client is a different job. Kanal Design traces direct labour, licensing costs and travel costs directly to each job. It allocates indirect costs to jobs based on a predetermined overhead rate computed as a percentage of direct labour costs.

At the beginning of the current year, managing partner Richard Latour prepared the following budget:

Direct labour hours (professional) 6,250 hours

Direct labour costs (professional) $1,000,000

Support staff salaries $125,000

Computer leases $ 45,000

Office supplies $ 25,000

Office rent $ 55,000

Later that same year in November, Kanal Design served several clients. Records for two clients appear as follows:

Acme Bakery Greensavers.com

Direct labour hours 780 hours 55 hours

Software licensing costs $2,500 $500

Travel costs $10,000 $0

Required:

Compute Kanal Designs predetermined indirect cost allocation rate for the current year.

Compute the total cost of each of the two jobs listed.

If Richard Latour wants to earn profits equal to 20% of sales revenue, how much (what total fee) should he charge each of these two clients?

Why does Kanal Design assign costs to jobs?