Chapter 3, Problem 3.52BP

Use job costing at an advertising agency (Learning Objectives 3, 4, & 7)

Unchil & Doshak is an advertising agency. The firm uses a job cost system in which each client is a different “job.” Unchil & Doshak traces direct labor, software licensing costs, and travel costs directly to each job (client). The company allocates indirect costs to jobs based on a predetermined indirect cost allocation rate based on direct labor hours.

At the beginning of the current year, managing partner Anoop Unchil prepared a budget:

Direct labor hours (professional)	17,100 hours
Direct labor costs (professional)	$2,052,000
Support staff salaries	$ 305,000
Rent and utilities	$ 46,000
Supplies	$ 319,300
Lease payments on computer hardware	$ 65,000

During January of the current year, Unchil & Doshak served several clients. Records for two clients appear here:

	Go trip.com	Port South Golf Resort
Direct labor hours	770 hours	65 hours
Software licensing costs	$2,100	$400
Travel costs	$7,000	$ 0

Requirements

1. 1. Compute Unchil & Doshak’s predetermined indirect cost allocation rate for the current year based on direct labor hours.
2. 2. Compute the total cost of each job.
3. 3. If Unchil & Doshak wants to earn profits equal to 20% of sales revenue, how much (what total fee) should it charge each of these two clients?
4. 4. Why does Unchil & Doshak assign costs to jobs?