Dove Design is a website design and consulting firm. The firm uses a job cost system, in which each client is a different job. Dove Design traces direct labor, licensing costs, and travel costs directly to each job (client). It allocates indirect costs to jobs based on a predetermined indirect cost allocation rate computed as a percentage of direct labor costs.
At the beginning of the current year, managing partner Mary Milici prepared the following budget:
Direct labor hours (professional)................................................... 10,000 hours
Direct labor costs (professional)....................................................... $1,400,000
Support staff salaries.......................................................................... $ 170,000
Computer leases.................................................................................... $ 49,000
Office supplies...................................................................................... $ 29,000
Office rent............................................................................................ $ 60,000
Later that same year in November, Dove Design served several clients. Records for two clients appear here:
Dining Coop SunNow.com
Direct labor hours................................... 770 hours.............45 hours
Software licensing costs......................... $ 2,300.....................$200
Travel costs............................................. $ 8,000......................$ 0
Requirements
1. Compute Dove Design's predetermined indirect cost allocation rate for the current year.
2. Compute the total cost of each of the two jobs listed.
3. If Dove Design wants to earn profits equal to 20% of sales revenue, how much (what total fee) should the company charge each of these two clients?
4. Why does Dove Design assign costs to jobs?