Comparing costs from ABC and single rate systems This problem continues the Draper Consulting, Inc., Recall that Draper allocated indirect costs to jobs based on a predetermined indirect cost allocation rate, computed as a percentage of direct labor costs. Because Draper provides a service, there are no direct materials costs. Draper is now considering using an ABC system. Information about ABC costs follows:
|
Activity |
Budgeted Cost of Activity |
Allocation Base |
Cost Allocation Rate |
|
Design |
$350,000 |
Number of designs |
$7,000 |
|
Programming |
550,000 |
Direct labor hours |
110 |
|
Testing |
288,000 |
Number of tests |
3,500 |
Records for two clients appear here:
|
Job |
Total Direct Labor Costs |
Total Number of Designs |
Total Programming Direct Labor Hours |
Number of Tests |
|
|
Tommy’s Trains |
$ |
13,600 |
3 |
730 |
6 |
|
Marcia’s Cookies |
|
600 |
5 |
300 |
8 |
Requirements
1. Compute the total cost of each job.
2. Is the job cost greater or less than that computed in Problem 17 35 for each job? Why?
3. If Draper wants to earn gross profit equal to 25% of cost, how much (what fee) should it charge each of these two clients?