Question

esol Adnet.com is an Internet advertising a ny The firm uses a job cost system in whicco uste in which each client is a different "job". Adnet.com traces direct labor, software licensing costs, and costs directly to each job (client). The company allocates overhead to jobs based on relationship between overhead and direct labor costs. At the beginning of the year. At the beginning of the year, the following budget was prepared: 17 500 hours $100hr Direct labor professionals Support staff salaries Rent and utilities Supplies Leased computer hardware $1.750,000 $ 305,000 S 95.000 $ 15,000 $ 285.000 Records for the client are as follows: In March, Adnet.com served the client Vacation Direct labor hours 460 hours Software licensing costs $1.490 Travel costs 59.000 Required Compute Adnet.com's overhead rate for the current year, Compute the total cost of the Go Vacation.com job. If Adnet.com wants to earn a gross profit equal to 20% of sales revenue, how much should they charge Go Vacation.com?

Answer 1

1. Total overhead estimated costs = $ ( 305,000 + 95,000 + 15,000 + 285,000 ) = $ 700,000.

Overhead rate for the current year = $ 700,000 / $ 1,750,000 = 0.40 or 40 % of direct labor cost.

2. Total cost of GoVacation.com job : $ 74,890

Direct labor ( 460 hours @ $ 100 per hour )	$ 46,000
Software licensing	1,490
Travel	9,000
Overhead costs ( $ 46,000 x 40 % )	18,400
Total Cost	$ 74,890

3. Adnet.com should charge GoVacation.com $ 93,613.

Price to be charged for the GoVacation.com job = $ 74,890 x 1.25 = $ 93,613.