Falcon Design is a website design and consulting firm. The firm uses a job cost system in which each client is a different “job.” Falcon 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)................................................. 7,500 hours

Direct labor costs (professional).................................................. $ 1,500,000

Support staff salaries................................................................... $ 180,000

Computer lease payments.......................................................... $ 46,000

Office supplies............................................................................. $ 24,000

Office rent................................................................................... $ 65,000

Later that same year in November, Falcon Design served several clients. Records for two clients appear here:

Requirements
1. Compute Falcon 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 Falcon 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 Falcon Design assign costs tojobs?

Transcribed Image Text:

Dining Treats Talknow.com 760 hours $2,700 $8,000 35 hours Direct labor hours. Licensing costs Travel costs. $150