Accounting for manufacturing overhead This problem continues the Draper Consulting, Inc., situation 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) |
5,500 hours |
|
Direct labor costs (professional) |
$990,000 |
|
Support staff salaries |
105,000 |
|
Computer leases |
48,000 |
|
Office supplies |
15,000 |
|
Office rent |
30,000 |
In November 2013, Draper served several clients. Records for two clients appear here:
|
|
Tommy’s |
Marcia’s |
|
|
Trains |
Cookies |
|
Direct labor hours |
730 |
300 hours |
|
Meal—per diem |
$2,600 |
$600 |
|
Travel costs |
11,000 |
0 |
Requirements
1. Compute Draper’s predetermined indirect cost allocation rate for 2012.
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?