Crow Design is an interior design firm. The firm uses a job cost system in which each client is a different "job."Crow Design traces direct labor, licensing costs, and travel costs directly to each job (client). 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 the current year, managing partner Brenna Gladstone prepared the following budget: Direct labor hours (professional). . . . . 8,000 hours Direct labor costs (professional). . . . . $1,600,000 Support staff salaries. . . . . . . . . . . . . . . $190,000 Computer lease payments. . . . . . . . . . . $41,000 Office supplies. . . . . . . . . . . . . . . . . . . . . $23,000 Office rent. . . . . . . . . . . . . . . . . . . . . . . . . $66,000 Later that same year in November, Crow Design served several clients. Records for two clients appear here: Fancy Food AllFood.com Direct labor hours. . . . . 680 hours 50 hours Licensing costs. . . . . . . $2,800 $450 Travel costs. . . . . . . . . . $5,000 $0 1. Compute Crow Design's predetermined indirect cost allocation rate for the current year. 2. Compute the total cost of each of the two jobs listed. 3. If CrowDesign wants to earn profits equal to 10% of sales revenue, how much (what total fee) should the company charge each of these two clients? 4. Why does CrowDesign assign costs to jobs?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter8: Budgeting For Planning And Control

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Crow Design is an interior design firm. The firm uses a job cost system in which each client is a different "job."Crow Design traces direct labor, licensing costs, and travel costs directly to each job (client). 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 the current year, managing partner

Brenna Gladstone prepared the following budget:

Direct labor hours (professional). . . . .

8,000 hours

Direct labor costs (professional). . . . .

$1,600,000

Support staff salaries. . . . . . . . . . . . . . .

$190,000

Computer lease payments. . . . . . . . . . .

$41,000

Office supplies. . . . . . . . . . . . . . . . . . . . .

$23,000

Office rent. . . . . . . . . . . . . . . . . . . . . . . . .

$66,000

Later that same year in November,

Crow Design served several clients. Records for two clients appear here:

	Fancy Food	AllFood.com
Direct labor hours. . . . .	680 hours	50 hours
Licensing costs. . . . . . .	$2,800	$450
Travel costs. . . . . . . . . .	$5,000	$0

1.	Compute Crow Design's predetermined indirect cost allocation rate for the current year.
2.	Compute the total cost of each of the two jobs listed.
3.	If CrowDesign wants to earn profits equal to 10% of sales revenue, how much (what total fee) should the company charge each of these two clients?
4.	Why does CrowDesign assign costs to jobs?

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