Hummingbird Design, Inc. is a Web site design and consulting firm. The firm uses a job order costing system in which each client is a different job. Hummingbird Design assigns direct labor, licensing costs, and travel costs directly to each job. It allocates indirect costs to jobs based on a predetermined overhead allocation rate, computed as a percentage of direct labor costs. At the beginning of 2016, managing partner Sally Simone prepared the following budget estimates:

Direct labor hours (professionals)……………       6,250 hours

Direct labor costs (professionals) ……………     $ 1,800,000

Support staff salaries…………………………                  767,000

Computer leases………………………………                      46,000

Office supplies……………………………….                        27,000

Office rent……………………………………                          60,000

In November 2016, Hummingbird Design served several clients. Records for two clients appear here:

Requirements

1. Compute Hummingbird Design’s direct labor rate and its predetermined overhead allocation rate for 2016.

2. Compute the total cost of each job.

3. If Simone wants to earn profits equal to 20% of service revenue, what fee should she charge each of these two clients?

4. Why does Hummingbird Design assign costs to jobs?

Transcribed Image Text:

Delicious Treats Mesilla Chocolates Direct labor hours 700 hours 100 hours Software licensing costs 5,000 Travel costs $300 6,000