Question:
Job order costing in a service company
Skylark Design, Inc., is a Web site design and consulting firm. The firm uses a job order costing system in which each client is a different job. Skylark Design traces direct labor, licensing costs, 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, managing partner Judi Jacquin prepared the following budget estimates:
Direct Labor hours 10,000
Direct Labor Costs 130,000,000
Support Staff Salaries 160,0000
computer leases 48,000
office supplies 28,000
office rent 66,000
Client Records:
Tasty Coop:
Labor hours 760
software lic. costs 2,500
travel costs 7,000
Martin chocolates:
Labor Hours 40
Software Lic. Costs 400
Travel 0
Show the work
Requirements
1. Compute Skylark Design's direct labor rate and its predetermined indirect cost allocation rate for 2012.
2. Compute the total cost of each job.
3. If Jacquin wants to earn profits equal to 50% of sales revenue, how much (what fee) should she charge each of these two clients?
4. Why does Skylark Design assign costs to jobs?