Question

In EXCEL Please: you must show your work in Excel, which includes providing the formulas in the cells, not just the summary value. You may not earn full points if you do not show your work in detail.

JLR Enterprises provides consulting services throughout California and uses a job-order costing system to accumulate the cost of client projects. Traceable costs are charged directly to individual clients; in contrast, other costs incurred by JLR, but not identifiable with specific clients, are charged to jobs by using a predetermined overhead application rate. Clients are billed for directly chargeable costs, over-head, and a markup.JLR’s director of cost management, Brent Dean, anticipates the following costs for the upcoming year:

Percentage of Cost Directly Traceable to

ClientsProfessional staff salaries ...............................$2,500,000 ....................................80%

Administrative support staff ............................   300,000 .................................................60%

Travel ...............................................................   250,000 ..................................................90%

Photocopying ..................................................    50,000 ................................................90%

Other operating costs ..................................... 100,000 ....................................50%

Total .............................................................$3,200,000

The firm’s partners desire to make a $640,000 profit for the firm and plan to add a percentage markup on total cost to achieve that figure.On March 10, JLR completed work on a project for Martin Manufacturing. The following costs were incurred: professional staff salaries, $41,000; administrative support staff, $2,600; travel, $4,500; photocopying, $500; and other operating costs, $1,400.

Questions Required:

Required: 1. Determine JLR’s total traceable costs for the upcoming year and the firm’s total anticipated overhead?   2. Calculate the predetermined overhead rate. The rate is based on total costs traceable to client jobs. 3. What percentage of cost will JLR add to each job to achieve its profit target? 4. Determine the total cost of the Martin Manufacturing project. How much would Martin be billed for services performed? 5. Notice that only 50 percent of JLR’s other operating cost is directly traceable to specific client projects. Cite several costs that would be included in this category and difficult to trace to clients. 6. Notice that 80 percent of the professional staff cost is directly traceable to specific client projects. Cite several reasons that would explain why this figure isn’t 100 percent.

Answer 1

1)
Traceable costs total $2,500,000, computed as follows:
	Total Cost	Percent Traceable	Traceable Cost
Professional staff salaries	$ 2,500,000.00	80%	$2,000,000
Administrative support staff	$    300,000.00	60%	$180,000
Photocopying	$    250,000.00	90%	$225,000
Travel	$      50,000.00	90%	$45,000
Other operating costs	$    100,000.00	50%	$50,000
Total	$ 3,200,000.00		$  2,500,000.00
2)
Budgeted Overhead  = nontraceable costs = (3200000 - 2500000)	$    700,000.00
Predetermined overhead rate = budgeted overhead ÷ traceable costs	28.00%	of traceable costs
3)
Target profit percentage = target profit ÷ total cost
Target profit percentage = $640,000 ÷  $3,200,000	20.00%	of cost
4)
Total cost of the Martin Manufacturing project.
Professional staff salaries	41000
Administrative support staff	2600
Photocopying	4500
Travel	500
Other operating costs	1400
Subtotal	50000
Overhead ($50,000 x 28%)	14000
Total cost	$64,000
Markup ($64,000 x 20%)	$12,800
Billing to Martin	$76,800
5)
Possible nontraceable costs include utilities, rent, depreciation, advertising, top management salaries, and insurance
6)
Professional staff members are compensated for attending training sessions and firm-wide planning meetings, paid vacations, and completion of general, non-client-related paperwork and reports.  These activities benefit multiple clients, the consultant, and/or the overall firm, making traceability to specific clients difficult if not impossible