Question:
Accounting for manufacturing overhead
This problem continues the Draper Consulting, Inc., situation from Problem 16-35 of Chapter 16. Draper Consulting uses a job order costing system in which each client is a different job. Draper 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 2013, the controller prepared the following budget:
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Direct labor hours (professional)
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hours
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Direct labor costs (professional)
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5,500
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Support staff salaries
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$990,000
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Computer leases
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105,000
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Office supplies
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48,000
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Office rent
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15,000
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In November 2013, Draper served several clients. Records for two clients appear here:
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Tommy's Trains
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Marcia's Cookies
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Direct labor hours
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730 hours
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300 hours
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Meal-per diem
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$ 2,600
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$ 600
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Travel costs
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11,000
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0
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Requirements
1. Compute Draper's predetermined indirect cost allocation rate for 2013.
2. Compute the total cost of each job.
3. If Draper 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 Draper assign costs to jobs?