Anderson & Little is an advertising agency. The firm uses a job cost system in which each client is a different "job." Anderson & Little traces direct labor, software licensing costs, and travel costs directly to each job (client). The company allocates indirect costs to jobs based on a predetermined indirect cost allocation rate based on direct labor hours.
At the beginning of the current year, managing partner Trang Anderson prepared a budget:
Direct labor hours (professional) 17,100 hours
Direct labor costs (professional) $2,052,000
Support staff salaries $ 160,000
Rent and utilities $ 48,000
Supplies $ 461,300
Lease payments on computer hardware $ 66,000
During January of the current year, Anderson & Little served several clients. Records for two clients appear here:
DreamVacation. com Port Armour Golf Resort
Direct labor hours 750 hours 30 hours
Software licensing costs $2,500 $150
Travel costs $8,000 $ 0
Requirements
1. Compute Anderson & Little's predetermined indirect cost allocation rate for the current year based on direct labor hours.
2. Compute the total cost of each job.
3. If Anderson & Little wants to earn profits equal to 20% of sales revenue, how much (what total fee) should it charge each of these two clients?
4. Why does Anderson & Little assign costs to jobs?

1) $43

2) $42750 and $1440

3) $53438 and $1800

4) By assigning costs to jobs it becomes easier to trace them back and look at the jobs individually. It also helps in the long term as you can build on previous errors or mistakes and improve on similar jobs in the future.

Explanation:

1) For Predet'd Indirect Cost Allocation based on DIRECT LABOR HOURS

=  TOTAL OVERHEADS / TOTAL DIRECT LABOR HOURS

=  735300/17100

= $43 = ICA

2) For TOTAL COSTS for each job we will simply multiply the Indirect Cost Allocated (=43) by the hours specified for each job.

= $43 x 750 HRS = 32250 = 32250+8000+2500 = $42570

= $43 x 30 HRS = 1290 = 1290+150 = $1440

3) For the price (fee), I have used simply markup/margin technique:

= 42750 X 100/80 = $53438 FOR DV.COM

= 1440 X 100/80 = $1800 FOR PAGR

(1) $43 per hour (2) Dream vacation comport Total Cost $132,750, Armour Gold Resort Total Cost $5,040 (3) Dream vacation comport $159,300, Armour Gold Resort $6,048 (4) To know the cost accrued based on each job and to know the cost of providing service to each clients.

Explanation:

(1) Predetermined indirect cost Allocation rate = Total Estimated indirect cost / Direct labour hours

To compute total estimated indirect cost

$

Support staff salaries. 160,000

Rent & utilities. 48,000

Supplies. 461,300

Lease payment on computer hardware 66,000

Total estimated indirect cost. 735,300

Direct Labour hours = 17,100 hours

= 735,300/17,100

= $43 per hour

(2)To compute the total cost of each job

= Direct Labour cost/ Direct Labour hour

= 2,052,000/ 17,100

= $120 per direct labour hour

To calculate Applied overhead for each job

Dream vacation comport

= $120 per direct labour hour × 750 direct labour hour

= $90,000

Armour Gold Resort

= $120 per direct labour hour × 30 direct labour hour

= $3,600

To calculate Total Direct Labour cost

Dream vacation comport

$43 per direct labour hour × 750 direct labour hour

= $32,250

Armour Gold Resort

= $43 per direct labour hour × 30 direct labour hour

= $1,290

Total Cost = Direct materials + Direct labour + Applied overhead

Dream vacation comport

$

Software licensing cost 2,500

Travel cost. 8,000

Direct Labour. 32,250

Applied overhead. 90,000

Total Cost. 132,750

Armour Gold Resort

$

Software licensing cost 150

Travel cost. 0

Direct Labour. 1,290

Applied overhead. 3,600

Total Cost. 5,040

(3)To calculate how much to charge each of these two client

Cost price + Profit = Selling price

Dream vacation comport

20/100 × 132,750

= $26,550

= 132,750 + 26,550

= $159,300

Armour Gold Resort

20 / 100 × 5,040

= $1,008

= 5,040 + 1,008

= $6,048

(4) To know the cost accrued based on each job, and know the cost of providing service to each clients

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