Question

GSE provides consulting services throughout the mid-Atlantic region and uses a job-order costing system to accumulate the costs of client projects. Traceable costs are charged directly to individual clients, in contrast, other costs incurred by GSE, but not identifiable with specific clients, are charged to jobs by using a predetermined overhead application rate. Clients are billed for directly chargeable costs, overhead, and a markup.

GSE's controller, Brianna Crozer, anticipates the following costs for 2017:

	Cost	Percentage of Cost Directly Traceable to Clients
Professional Staff Salaries	3,750,000	80%
Administrative Support Staff	450,000	60%
Photocopying	75,000	90%
Travel	375,000	90%
Other Operating Costs	150,000	50%
Total	4,800,000

The firm's partners desire to make a $960,000 profit for the firm and plan to add a percentage markup on total cost to achieve that figure for 2017.

On February 6, 2017, GSE completed work work on a project for dominion Products Corporation. The following costs were incurred: professional staff salaries, $61,500; administrative support staff, $3,900; photocopying, $750; travel, $6,750; and other operating costs, $2,100.

Required:

1) Determine GSE's total traceable costs for 2017 and the firm's total anticipated overhead

2) Calculate the predeteremined overhead rate. The rate is based on total costs traceable to client jobs.

3) What percentage of cost will the firm add to each job to achieve its profit target?

Answer 1