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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?
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