Question

Adnet.com is an internet advertising agency. The firm uses a job cost system in which each client is a different “job.” Adnet.com traces direct labour, software licensing costs, and travel costs directly to each job. The company allocates indirect costs to jobs based on a predetermined indirect cost allocation rate based on direct labour hours.
At the beginning of the current year, managing partner Ricky Buena prepared a budget:
Direct labour hours (professional)................................................... 17,500 hours
Direct labour costs (professional).................................................... $1,750,000
Support staff salaries....................................................................... 305,000
Rent and utilities............................................................................. 95,000
Supplies........................................................................................... 15,000
Lease payments on computer hardware........................................... 285,000
During January of the current year, Adnet.com served several clients. Records for two clients appear here:
Requirements
1. Compute Adnet.com’s predetermined indirect cost allocation rate for the current year based on direct labour hours.
2. Compute the total cost of each job.
3. If Adnet.com wants to earn profits equal to 20% of sales revenue, how much (what total fee) should it charge each of these two clients?
4. Why does Adnet.com assign costs to jobs?


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  • CreatedApril 30, 2015
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