Cardinal.com is an internet advertising agency. The fi rm uses a job cost system in which each client is a different "job." Cardinal.com 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 Jon Augustine prepared a budget:
Direct labor hours (professional)....................................................... 17,200 hours
Direct labor costs (professional)........................................................... $2,236,000
Support staff salaries.............................................................................. $ 120,000
Rent and utilities...................................................................................... $ 47,000
Supplies.................................................................................................. $ 523,800
Lease payments on computer hardware................................................... $ 66,000
During January of the current year, Cardinal.com served several clients. Records for two clients appear here:
Port Baltimore
AllTrips.com Golf Resort
Direct labor hours..............................................................770 hours............45 hours
Software licensing costs........................................................$ 2,700................$300
Travel costs..........................................................................$10,000..................$ 0
Requirements
1. Compute Cardinal.com'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 Cardinal.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 Cardinal.com assign costs to jobs?