Unchil & Doshak is an advertising agency. The firm uses a job cost system in which each client is a different "job." Unchil & Doshak 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 Anoop Unchil prepared a budget:
Direct labor hours (professional) ................................................. 17,100 hours
Direct labor costs (professional) .................................................... $2,052,000
Support staff salaries ....................................................................... $ 305,000
Rent and utilities ................................................................................ $ 46,000
Supplies ........................................................................................... $ 319,300
Lease payments on computer hardware ............................................ $ 65,000
During January of the current year, Unchil & Doshak served several clients. Records for two clients appear here:
_____________________________________GoTrip.com________Port South Golf Resort
Direct labor hours ............................................. 770 hours...............................65 hours
Software licensing costs ................................... $2,100...........................................$400
Travel costs ....................................................... $7,000............................................$ 0
Requirements
1. Compute Unchil & Doshak'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 Unchil & Doshak 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 Unchil & Doshak assign costs to jobs?