Golden State Enterprises provides consulting services throughout California and uses a job-order cost- ing system to accumulate the cost of client projects. Traceable costs are charged directly to individ- ual clients; in contrast, other costs incurred by Golden State, but not identifiable with specific clients, are charged to jobs by using a predetermined overhead application rate. Clients are billed for directly chargeable costs, overhead, and a markup.

Golden State’s director of cost management, Brent Dean, anticipates the following costs for the upcoming year:

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Â	  Cost	Â	Percentage of Cost Directly Traceable to Clients
Professional staff salaries  ..................	$3,750,000	....................................	80%
Administrative support staff ...............	450,000	....................................	60%
Photocopying   ....................................	75,000	....................................	90%
Travel ...............................................	375,000	....................................	90%
Other operating costs ........................	150,000	....................................	50%
Total ............................................	$4,800,000	Â	Â

The firm’s partners desire to make a $960,000 profit for the firm and plan to add a percentage markup on total cost to achieve that figure.

 

 

On March 10, Golden State completed work on a project for Davis Manufacturing. The following costs were incurred: professional staff salaries, $61,500; administrative support staff, $3,900; photo- copying, $750; travel, $6,750; and other operating costs, $2,100.

Required:

1.      Determine Golden State Enterprises’ total traceable costs for the upcoming year and the firm’s total anticipated overhead.

2.      Calculate the predetermined overhead rate. The rate is based on total costs traceable to client jobs.

3.      What percentage of cost will the firm add to each job to achieve its profit target?

4.      Determine the total cost of the Davis Manufacturing project. How much would Davis be billed for services performed?

5.      Notice that only 50 percent of Golden State’s other operating cost is directly traceable to specific cli- ent projects. Cite several costs that would be included in this category and difficult to trace to clients.

6.      Notice that 80 percent of the professional staff cost is directly traceable to specific client projects. Cite several reasons that would explain why this figure isn’t 100 percent.