| 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. Widget Design traces direct labor, licensing costs, | ||||||||||
| and travel costs directly to each job. 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 2011, managing partner Judi Johnson prepared the following budget: | ||||||||||
| Direct Labor Hours | 10,000 | hours | ||||||||
| Direct Labor Costs | $ 1,400,000 | |||||||||
| Support Staff Salaries | $ 170,000 | |||||||||
| Computer Leases | $ 49,000 | |||||||||
| Office Supplies | $ 29,000 | |||||||||
| Office Rent | $ 60,000 | |||||||||
| In November 2011, Widget Design served several clients. Records for two clients appear here: | ||||||||||
| Dining Coop | Root Chocolates | |||||||||
| Direct labor hours | 740 hours | 65 | hours | |||||||
| Software licensing costs | $ 2,100 | $ 300 | ||||||||
| Travel costs | $ 9,000 | $ – | ||||||||
| Deliverables | ||||||||||
| 1. | Compute Design’s predetermined indirect cost allocation rate for 2011. | |||||||||
| 2. | Compute the total cost of each job. | |||||||||
| 3. | If Design’s inc wants to earn profits equal to 20% of sales revenue, how much (what fee) should | |||||||||
| it charge each of these two clients? | ||||||||||
| 4. | Why does Widget Design assign costs to jobs? | |||||||||
| Deliverable 1 | ||||||||||
| The predetermined indirect cost allocation rate = | ||||||||||
| HINT: | Do this with a formula showing indirect costs to total direct labor costs | |||||||||
| Deliverable 2 | ||||||||||
| First enter in the direct costs for each job. Then enter in the indirect costs and total | ||||||||||
| costs for the jobs. | ||||||||||
| Make sure to enter “0” in the appropriate column. Enter percentage amounts as a whole | ||||||||||
| number. Round your answers to the nearest whole dollar. | ||||||||||
| Widget Design, Inc. | ||||||||||
| Estimated Cost of Dining Coop and Root Chocolates Jobs | ||||||||||
| Dining Coop | Root Chocolates | |||||||||
| Direct Costs: | ||||||||||
| Direct labor | ||||||||||
| Software licensing costs | ||||||||||
| Travel | ||||||||||
| Total Direct Costs | ||||||||||
| Indirect Costs: | ||||||||||
| $ – | ||||||||||
| $ – | ||||||||||
| Total Cost | $ – | $ – | ||||||||
| Deliverable 3 | ||||||||||
| Determine the amount Robin Design, Inc. should charge these clients. | ||||||||||
| (Round your answers to the nearest whole dollar.) | ||||||||||
| Dining Coop: | ||||||||||
| Root Chocolates: | ||||||||||
| Deliverable 4 | ||||||||||
| Widget Designs, Inc. assigns costs to jobs to help the company | ||||||||||
| Assigning costs to: | ||||||||||
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