James CPA is a consulting firm. The firm uses a job order cost system in which each client represents an individual job. James traces direct labor and travel costs to each job (client). It assigns indirect costs to clients at a predetermined overhead rate based on direct labor hours.
At the beginning of the year, the managing partner prepared the following budget:
Direct labor hours (professional) 5,400 hours
Direct labor costs (professional) $ 540,000
Indirect costs: Support staff salaries $ 73,600
Office rent 59,000
Office supplies 24,000
Total expected indirect costs $ 156,600
Later that same year, in March, James served several clients. Records for two clients appear below: Oliverio McComb Direct labor cost (professional) $ 4,400 $ 3,400 Travel costs 600 200 Direct labor hours 44 hours 34 hours
Required:
Compute Jame’s predetermined overhead rate for the current year. Compute the total cost of serving the clients listed. Assume that James charges clients $210 per hour for his services. How much gross profit would he earn on each of the clients above, ignoring any difference between actual and applied overhead?