Chapter 19, Problem P19.39BPGB

Using job order costing in a service company
Learning Objective 6
2. Tasty Co-op $312,500

Skylark Design, Inc. is a Web site design and consulting firm. The firm uses a job order costing system in which each client is a different job. Skylark Design assigns direct labor, licensing costs, and travel costs directly to each job. It allocates indirect costs to jobs based on a predetermined overhead allocation rate, computed as a percentage of direct labor costs.
At the beginning of 2018, managing partner Judi Jacquin prepared the following budget estimates:

Direct labor hours (professionals)	8,000 hours
Direct labor costs (professionals)	$2,000,000
Support staff salaries	866,000
Computer leases	49,000
Office supplies	24,000
Office rent	61,000

In November 2018, Skylark Design served several clients. Records for two clients appear here:

	Tasty Co-op	Maynard Chocolates
Direct labor hours	800 hours	300 hours
Software licensing costs	$1,500	$500
Travel costs	11,000	0

Requirements

1. Compute Skylark Design's direct labor rate and its predetermined overhead allocation rate for 2018.
2. Compute the total cost of each job.
3. If Judi wants to earn profits equal to 50% of service revenue, what fee should she charge each of these two clients?
4. Why does Skylark Design assign costs to jobs?