Job order costing in a service company
Skylark 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. Skylark 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 2013, managing partner Judi Jacquin prepared the following budget estimates:
| Direct labor hours (professional) | 8,000 hours |
| Direct labor costs (professional) | $2,000,000 |
| Support staff salaries | 664,000 |
| Computer leases | 47,000 |
| Office supplies | 23,000 |
| Office rent | 66,000 |
In November 2013, Skylark Design served several clients. Records for two clients appear here:
| Food Coop | Martin Chocolates | |
| Direct labor hours | 900 hours | 100 hours |
| Software licensing costs | $ 3,500 | 100 |
| Travel costs | 11,000 | — |
Requirements
1. Compute Skylark Design’s direct labor rate and its predetermined indirect cost allocation rate for 2012.
2. Compute the total cost of each job.
3. If Jacquin wants to earn profits equal to 50% of sales revenue, how much (what fee) should she charge each of these two clients?
4. Why does Skylark Design assign costs to jobs?
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