Chapter 3, Problem 3.47AP

Use job costing at a consulting firm (Learning Objectives 3, 4, & 7)

Sierra Design is an interior design firm. The firm uses a job cost system in which each client is a different “job.” Sierra 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 Laurie Walker prepared the following budget:

Direct labor hours (professional)	10,000 hours
Direct labor costs (professional)	$ 1,100,000
Support staff salaries	$ 140,000
Computer lease payments	$ 46,000
Office Supplies	$ 26,000
Office rent	$ 63,000

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

	Delightful Dining	Dine now.com
Direct labor hours	710 hours	40 hours
Software licensing costs	$ 2,300	$300
Travel costs	$ 10,000	$0

Requirements

1. 1. Compute Sierra Design’s predetermined indirect cost allocation rate for the current year.
2. 2. Compute the total cost of each of the two jobs listed.
3. 3. If Sierra Design wants to earn profits equal to 20% of sales revenue, how much (what total fee) should the company charge each of these two clients?
4. 4. Why does Sierra Design assign costs to jobs?