Marsha Design is an interior design and consulting firm. The firm uses a job order cost system
Question:
Marsha Design is an interior design and consulting firm. The firm uses a job order cost system in which each client represents an individual job. Marsha Design traces direct labor and travel costs to each job (client). It assigns indirect costs to clients at a predetermined overhead rate based on direct labor hours.
At the beginning of the year, the managing partner, Marsha Cain, prepared the following budget:
Direct labor hours (professional) | 5,500 | hours | ||
Direct labor costs (professional) | $ | 550,000 | ||
Indirect costs: | ||||
Support staff salaries | $ | 80,000 | ||
Office rent | 60,000 | |||
Office supplies | 25,000 | |||
Total expected indirect costs | $ | 165,000 | ||
Later that same year, in March, Marsha Design served several clients. Records for two clients appear below:
Oliverio | McComb | |||||||
Direct labor cost (professional) | $ | 4,500 | $ | 3,500 | ||||
Travel costs | 700 | 300 | ||||||
Direct labor hours | 45 hours | 35 hours | ||||||
Required:
1. Compute Marsha Design’s predetermined overhead rate for the current year.
2. Compute the total cost of serving the clients listed.
3. Assume that Marsha charges clients $220 per hour for interior design services. How much gross profit would she earn on each of the clients above, ignoring any difference between actual and applied overhead?
Probability and Statistics for Engineering and the Sciences
ISBN: 978-1305251809
9th edition
Authors: Jay L. Devore