Question

Curtis & Company is an architectural firm specializing in home remodeling for private clients and new office buildings for corporate clients.

Curtis & Company charges customers at a billing rate equal to 130% of the client's total job cost. A client's total job cost is a combination of 1) professional cost based on the professional hours spent on the client's job, and 2) operating costs allocated to the client's job. Curtis currently allocates operating costs to jobs based on the number of professional hours spent on the job.

Curtis estimates its five professionals will work a total of 9,000 hours on client jobs during the year, and their salaries will total $990,000. All operating costs other than professional salaries (travel reimbursements, copy costs, secretarial salaries, office lease, etc.) can be grouped into three activities. Relevant information for these activities are estimated as follows:

             

	Total		Total Usage by	Total Usage by
Activity	Activity Cost	Cost Driver	Corporate Clients	Private Clients

Transportation to clients	$11,000	Round-trip mileage to clients	3,000 miles	13,100 miles
Blueprint copying	34,000	Number of copies	170 copies	650 copies
Office support	194,500	Secretarial time	2,400 hours	2,800 hours
Total operating costs	$239,500

Amy Lee hired Curtis & Company to design her kitchen remodeling. A total of 22 professional hours were spent on this job. In addition, Amy's remodeling job required one of the professionals to travel back and forth to her house for a total of 150 miles. The blueprints had to be copied five times because Amy changed the plans several times. In addition, 15 hours of secretarial time were used lining up the subcontractors for the job.

Question: What is the total cost of Amy Lee's remodeling job under the current single-driver system?

Question: What would be the total cost of Amy Lee's remodeling job under an activity-based costing system?

Answer 1

Solution:

Calculation of the Total Cost of Amy Lee's Remodeling job Under the Current Single Driver System:

Therefore, the Total Cost of Amy Lee's Remodeling job Under the Current Single Driver System is $3,005.

Calculation of the Total Cost of Amy Lee's Remodeling Job Under an Activity Based Costing System:

Activity	Activity Cost	Cost Driver	Total Usage by Clients	Recovery Rate Per Cost Driver
Transportation to clients	$11,000	Round Trip	16,100	$0.68
Blueprint copying	$34,000	No. of copies	820	$41.46
Office support	$194,500	Secretarial Tiime	5,200	$37.40
Total Operating Costs	$239,500

Allocation of the Operating Costs:

Activity	Recovery Rate Per Cost Driver	Usage	Cost Allocation
Transportation to clients	$0.68	150 Miles	$102
Blueprint copying	$41.46	5 Times	$207.30
Office support	$37.40	15 Hrs	$561
Total Operating Costs			$870.30

Therefore, the Total Cost of Amy Lee's Remodeling Job Under an Activity Based Costing System is $3,290.30.