Question

Job-Order Costing in a Consulting
Firm

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, overhead, and a markup. JLR’s director of cost management, Brent Dean, anticipates the following costs for the upcoming year:

Cost Percentage of Cost Directly Traceable to Clients

Professional 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.

Required:
1. Determine JLR’s total traceable costs for the upcoming year and the firm’s total anticipated overhead. $2,500,000
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

Answer is given below