Chapter 19, Problem P19.40CP

Accounting for manufacturing overhead

This problem continues the Daniels Consulting situation from Problem P18-42 of Chapter 18. Daniels Consulting uses a job order costing system in which each client is a different job. Daniels assigns direct labor, meal per diem, 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, the controller prepared the following budget:

Direct labor hours (professionals)	6,250 hours
Direct labor costs (professionals)	$ 1,100,000
Support staff salaries	90,000
Computer leases	57,000
Office supplies	40,000
Office rent	55,000

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

Requirements

1. Compute Daniels's predetermined overhead allocation rare for 2018.
2. Compute the total cost of each job.
3. If Daniels wants to earn profits equal to 25% of sales revenue, what fee should it charge each of these two clients?
4. Why does Daniels assign costs to jobs?