Question

Clark & Taylor is an Internet advertising agency. The firm uses a job cost system in which each client is a different “ job.” Clark & Taylor traces direct labor, software licensing costs, and travel costs directly to each job ( client). The company allocates indirect costs to jobs based on a predetermined indirect cost allocation rate based on direct labor hours. At the beginning of the current year, managing partner Yimeng Li prepared a budget:

Direct labor hours ( professional)................................................. 17,900 hours
Direct labor costs ( professional)............................................ $ 1,790,000
Support staff salaries................................................................... $ 160,000
Rent and utilities......................................................................... $ 95,000
Supplies ...................................................................................... $ 505,400
Lease payments on computer hardware..................................... $ 63,000

During January of the current year, Clark & Taylor served several clients. Records for two clients appear here:


Requirements
1. Compute Clark & Taylor’s predetermined indirect cost allocation rate for the current year based on direct labor hours.
2. Compute the total cost of each job.
3. If Clark & Taylor 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 Clark & Taylor assign costs tojobs?


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  • CreatedAugust 27, 2014
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