Question

Vista Design is an interior design firm. The firm uses a job cost system in which each client is a different​ "job."Vista 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). . . . . . .	7,500 hours
Direct labor costs (professional). . . . . . .	$1,500,000
Support staff salaries. . . . . . . . . . . . . . . .	$180,000
Computer lease payments. . . . . . . . . . . .	$46,000
Office supplies. . . . . . . . . . . . . . . . . . . . .	$24,000
Office rent. . . . . . . . . . . . . . . . . . . . . . . . .	$65,000

Later that same year in​ November, Vista Design served several clients. Records for two clients appear​ here:

	Tasty Coop		SunNow.com
Direct labor hours. . . . . . . . . .	760 hours		55 hours
Licensing costs. . . . . . . . . . . .	$2,800		$350
Travel costs. . . . . . . . . . . . . . .	$9,000		$0

.1	Compute Vista​ 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 VistaDesign wants to earn profits equal to 30​%of sales​ revenue, how much​ (what total​ fee) should the company charge each of these two​ clients?
4.	Why does Vista Design assign costs to​ jobs?

Requirement 1. Compute Vista Design's predetermined indirect cost allocation rate for the current year.

Identify the​ formula, then compute the rate. ​(Enter the result as a whole​ number.)

					Predetermined indirect
		/		=	cost allocation rate
		/		=		%

Requirement 2. Compute the total cost of each of the two jobs listed.

First enter in the direct costs for each​ job, then enter in the indirect costs and total cost for the jobs. ​(Complete all answer boxes. For accounts with no​ balance, make sure to enter​ "0" in the appropriate cell. Enter percentage amounts as a whole number. Round your answers to the nearest whole​ dollar.)

Vista Design
Estimated Cost of Tasty Coop and SunNow.com Jobs
				Tasty Coop	SunNow.com
Direct Costs:
		hours x
		hours x
Total Direct Costs

Indirect Costs:
		% x
		% x
Total Cost

Requirement 3 If Vista Design wants to earn profits equal to 30​% of sales​ revenue, how much​ (what total​ fee) should the company charge each of these two​ clients?

Identify the formula then determine the amount Vista Design should charge these clients. ​(Round your answers to the nearest whole​ dollar.)

/

=

Fee charged

Tasty Coop

/

%

=

SunNow.com

/

%

=

Requirement 4. Why does

Vista Design assign costs to​ jobs?

Vista Design assigns costs to jobs to help the company ▼(increase labor hours,lower employee wages,set fees) that cover all costs and contribute to profit. Assigning costs to

▼

(a grouping of clients, individual clients) also can help Vista Design control costs.

Answer 1

Answer:

Req. 1

Total estimated indirect costs	=	$ 315,000*	=	21%
Direct labor cost	$1,500,000

* $180,000 + $46,000 + $24,000 + $65,000 = $315,000

Req. 2

Vista Design
Estimated Cost of Tasty Coop  and SunNow.com Jobs
	Tasty Coop	SunNow.com
Direct Costs:
Direct Labor
760 Hrs. × $200*	$ 152,000
55 Hrs.× $200*		$   11,000
Licensing Costs	2,800	350
Travel	9,000	0
Total Direct Costs	$ 163,800	$   11,350
Indirect Costs:
21% × $152,000	31,920
21% × $11,000		2,310
Total Cost	$ 195,720	$   13,660

*DL Cost $1,500,000/7,500 Hours = $200/Hr.

Req. 3

Sales revenue − Total cost	=	Profit
Sales revenue − Total cost	=	0.30 × Sales revenue
0.70 × Sales revenue	=	Total cost
Sales revenue	=	Total cost
		0.70

Tasty Coop

$195,720	=	$279,600
0.70

SunNow.com

$13,660	=	$19,514.29
0.70

Req. 4

Vista Design assigns costs to jobs to help the company set fees that cover all costs and contribute to profit. Assigning costs to individual clients can also help Vista Design control costs.