Question
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
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 Design's 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?
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