Question

Robin 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. Robin 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 Janie Eaton prepared the following budget estimates: (Click the icon to view the prepared budget.) In November 2018, Robin Design served several clients. Records for two clients appear here: (Click the icon to view the records for two clients.) Read the requirements. Requirement 1. Compute Robin Design's direct labor rate and its predetermined overhead allocation rate for 2018. (Abbreviation used: OH = overhead.) Begin with the direct labor rate. Estimated direct labor costs Estimated direct labor hours In Direct labor rate 300 per hour 2,400,000 8,000 11 Compute Robin Design's predetermined overhead cost allocation rate for 2018. Estimated OH costs Estimated direct labor costs Predetermined OH cost allocation rate 480,000 2,400,000 20 % Requirement 2. Compute the total cost of each job. First, enter the direct costs for each job. Then enter in the indirect costs and compute the total cost for each job. (Enter a "0" for any zero balances.) Robin Design, Inc. Estimated Cost of Tasty Coop and Maynard Chocolates Jobs Maynard

Answer 1

Robin Design Inc

1. Computation of the direct labor rate and predetermined overhead allocation rate for 2018:

Direct labor rate –

Estimated Direct Labor costs	∕	Estimated direct labor hours	=	Direct labor cost
24,00,000	∕	8,000	=	300

Predetermined overhead allocation rate for 2018 –

Estimated overhead costs –

Support staff salaries        $354,000

Computer leases               $44,000

Office Supplies                 $22,000

Office Rent                       $60,000

Estimated OH Costs         $480,000

Allocation rate = (estimated overhead cost/direct labor cost) x 100

= 480,000/2,400,000 = 20%

2. Computation of total cost of each job:

Robin Design Inc
Estimated Cost of Tasty Coop and Maynard Chocolates Jobs
	Tasty Coop	Maynard Chocolates
Direct Costs:
Direct labor
800 hours x $300	$240,000
500 hours x $300		$150,000
Software licensing costs	$2,500	$500
Travel Costs	$7,000	0
Total Direct Costs	$249,500	$150,500
Allocated indirect costs:
20% x 240,000	$48,000
20% x 150,000		$30,000
Total Costs	$297,500	$180,500

3. Desired profit = 20% of service revenue

Service revenue = ?

Service revenue = cost + profit

Cost = service revenue – profit

If service revenue = 100%

Profit = 20%

Then cost = 80% of service revenue

Applying these percent to each of the jobs –

Tasty Coop –

Cost = 297,500

Service revenue = cost/80%

Service revenue = 297,500/80% = $371,875

Maynard Chocolates –

Cost = $180,500

Service revenue = cost/80%

Service revenue = 180,500/80% = $225,625

Service Revenue

Tasty Coop = $371,875

Maynard Chocolates = $225,625

4. Why assign costs to jobs:

Robin Design assigns costs to jobs to help the company estimate service revenue that cover all costs and contribute to profit. Assigning costs to Jobs also can help Robin Design control costs.