Question

PelicanAds.com is an internet advertising agency. The firm uses a job cost system in which each client is a different “job.” PelicanAds.com traces direct labour, 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 computed as a percentage of direct labour costs.
At the beginning of the current year, managing partner Ricky Beuna prepared a budget:
Direct labour hours (professional)............................................ 8,000 hours
Direct labour costs (professional)............................................. $1,600,000
Support staff salaries................................................................ 190,000
Rent and utilities...................................................................... 41,000
Supplies.................................................................................... 23,000
Lease payments on computer hardware.................................... 66,000
During January of the current year, PelicanAds.com served several clients. Records for two clients appear here:
Requirements
1. Compute PelicanAds.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 PelicanAds.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 PelicanAds.com assign costs to jobs?


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  • CreatedApril 30, 2015
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