Job order costing in a service company
Crow Design, Inc., is aWeb site design and consulting firm. The firm uses a job order costing system in which each client is a different job. Crow 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 2012, managing partner Sally Simone prepared the following budget estimates:
| Direct labor hours (professional) | 6,250 hours |
| Direct labor costs (professional) | $1,800,000 |
| Support staff salaries | 765,000 |
| Computer leases | 46,000 |
| Office supplies | 27,000 |
| Office rent | 62,000 |
In November 2012, Crow Design served several clients. Records for two clients appear here:
| Delicious Treats | Mesilla Chocolates | |
| Direct labor hours | 700 hours | 100 hours |
| Software licensing costs | $ 4,000 | $ 400 |
| Travel costs | 8,000 | – |
Requirements
1. Compute Crow Design’s direct labor rate and its predetermined indirect cost allocation rate for 2012.
2. Compute the total cost of each job.
3. If Simone wants to earn profits equal to 50% of service revenue, how much (what fee) should she charge each of these two clients?
4. Why does Crow Design assign costs to jobs?
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