Marsha Design is an interior design and consulting firm. The firm uses a job order cost system in which each client represents an individual job. Marsha Design traces direct labor and travel costs to each job (client). It assigns indirect costs to clients at a predetermined overhead rate based on direct labor hours.

At the beginning of the year, the managing partner, Marsha Cain, prepared the following budget:

Direct labor hours (professional)		5,500	hours
Direct labor costs (professional)	$	550,000
Indirect costs:
Support staff salaries	$	80,000
Office rent		60,000
Office supplies		25,000
Total expected indirect costs	$	165,000

Later that same year, in March, Marsha Design served several clients. Records for two clients appear below:

	Oliverio			McComb
Direct labor cost (professional)	$	4,500		$	3,500
Travel costs		700			300
Direct labor hours	45 hours			35 hours

Required:
1. Compute Marsha Design’s predetermined overhead rate for the current year.

2. Compute the total cost of serving the clients listed.

3. Assume that Marsha charges clients $220 per hour for interior design services. How much gross profit would she earn on each of the clients above, ignoring any difference between actual and applied overhead?

Answer rating: 100% (QA)

A B E F Budgeted overhead cost Budgeted number of direct labor hours Pr... View the full answer