Bluebird Design is a website design and consulting firm. The firm uses a job cost system in which each client is a different "job." Bluebird Design traces direct labor, licensing costs, and travel costs directly to each job (client). It allocates indirect costs to jobs based on a predetermined indirect cost allocation rate computed as a percentage of direct labor costs.
At the beginning of the current year, managing partner Mary Milici prepared the following budget:
Direct labor hours (professional)................................................................... 8,000 hours
Direct labor costs (professional)..................................................................... $1,200,000
Support staff salaries........................................................................................ $ 140,000
Computer lease payments.................................................................................. $ 47,000
Office supplies................................................................................................... $ 27,000
Office rent......................................................................................................... $ 62,000
Later that same year in November, Bluebird Design served several clients. Records for two clients appear here:
Tasty Coop GoGreen.com
Direct labor hours........................................................720 hours.................45 hours
Licensing costs.................................................................$2,200.....................$250
Travel costs......................................................................$7,000........................$ 0
Requirements
1. Compute Bluebird Design's predetermined indirect cost allocation rate for the current year.
2. Compute the total cost of each of the two jobs listed.
3. If Bluebird Design wants to earn profits equal to 20% of sales revenue, how much (what total fee) should the company charge each of these two clients?
4. Why does Bluebird Design assign costs to jobs?