Accounting for manufacturing overhead
This problem continues the Draper Consulting, Inc., situation from Problem 16-35 of Chapter 16. Draper Consulting uses a job order costing system in which each client is a different job. Draper traces direct labor, daily per diem, 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 2013, the controller prepared the following budget:
| Direct labor hours (professional) | hours |
| Direct labor costs (professional) | 5,500 |
| Support staff salaries | $990,000 |
| Computer leases | 105,000 |
| Office supplies | 48,000 |
| Office rent | 15,000 |
In November 2013, Draper served several clients. Records for two clients appear here:
| Tommy’s Trains | Marcia’s Cookies | |
| Direct labor hours | 730 hours | 300 hours |
| Meal—per diem | $ 2,600 | $ 600 |
| Travel costs | 11,000 | 0 |
Requirements
1. Compute Draper’s predetermined indirect cost allocation rate for 2013.
2. Compute the total cost of each job.
3. If Draper wants to earn profits equal to 25% of sales revenue, how much (what fee) should it charge each of these two clients?
4. Why does Draper assign costs to jobs?
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