RBC, Inc. uses a job order costing system, in which each client is a different job. RBC, Inc. 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 2011, the controller prepared the following budget:
Direct Labor (professional).............................. 5,000 hours
Direct Labor Costs (professional)................... $1,000,000
Support Staff salaries........................................ 100,000
Computer leases............................................... 80,000
Office Supplies.................................................. 20,000
Office Rent........................................................ 60,000
In November, 2011, RBC, Inc. served several clients. Records for two clients appear here:
Drake Jazz
Corporation International
Direct labor hours............................. 700 hours 100 hours
Meal-per diem................................... $2,200 $ 500
Travel costs........................................ 9,000 0
Requirement B:
1. Compute RBC, Inc. predetermined indirect cost allocation rate for 2011.
2. Compute the total cost of each job
3. If RBC, Inc. 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 RBC, Inc. assign costs to jobs?