Job costing: consulting firm:
WA Consulting Services Pty Ltd (WAGS) provides consulting services throughout Western Australia and uses a job costing system to accumulate the cost of client projects. Traceable costs are charged directly to individual clients; in contrast, other costs incurred by WAGS, but not identifiable with specific clients, are charged to jobs by using a predetermined overhead rate. Clients are billed for directly chargeable costs, overhead and a markup for the profit margin.
WA Consulting Services' financial controller, Eloise Sutch, anticipates the following costs for the coming year:
|
Cost |
Percentage of cost directly traceable to clients |
| Professional staff salaries |
$2,400,000 |
80% |
| Administrative support staff |
400,000 |
60% |
| Travel |
250,000 |
90% |
| Photocopying |
50,000 |
90% |
| Other operating costs |
100,000 |
70% |
| Total |
$3,200,000 |
|
The firm's management wishes to make a $640,000 profit for the firm and plans to add a percentage a markup on total cost to achieve that figure.
On to March, WACS completed work on a project for Martin Manufacturing. The following were incurred:
|
cost |
| Professional staff salaries |
$41,000 |
| Administrative support staff |
2,600 |
| Travel |
4,500 |
| Photocopying |
500 |
| Other operating costs |
1,400 |
1. Determine WACS' total traceable costs for the coming year and the firm's total anticipated overhead.
2. Calculate the predetermined overhead rate, assuming the cost driver is traceable costs.
3. What percentage of cost will WACS add to each job to achieve its profit target?
4. Determine the total cost of the Martin Manufacturing project.
5. How much would Martin be billed for the services performed? Compare this approach to the client billing system described in this chapter.
6. Notice that only 70 per cent of WACS' other operating cost is directly traceable to specific client projects. Identify several costs that would be included in other operating costs and would be difficult to trace to clients.
7. Notice that 80 per cent of the professional staff cost is directly traceable to specific client projects. Give several reasons that would explain why this figure isn't 100 per cent.