Question: This problem continues the Davis Consulting Inc situation from Problem

This problem continues the Davis Consulting, Inc. situation from Problem. Recall that Davis allocated indirect costs to jobs based on a predetermined overhead allocation rate, computed as a percentage of direct labor costs. Because Davis provides a service, there are no direct materials costs. Davis is now considering using an ABC system. Information about ABC costs follows:

Records for two clients appear here:

1. Compute the total cost for each job. The cost of direct labor is $ 180 per hour.
2. Is the job cost greater or less than that computed in Problem for each job? Why?
3. If Davis wants to earn an operating income equal to 25% of the total cost, how much (what fee) should it charge each of these twoclients?
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  • CreatedJanuary 16, 2015
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