Marsha Design is an interior design and consulting firm. The firm uses a job order cost system in which each client represents an individual job. Marsha Design 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, Marsha Cain, prepared the following budget:
Direct labor hours (professional) 5000
Direct labor costs (professional) 500,000
Support staff salaries $ 50,000
Office rent 55,000
Office supplies 20,000
Total expected indirect costs $125,000
Later that same year, in March, Marsha Design served several clients. Records for two clients appear below:
Marsha Design is an interior design and consulting firm. The
Required:
1. Compute Marsha Design’s predetermined overhead rate for the current year.
2. Compute the total cost of serving the clients listed.
3. Assume that Marsha charges clients $250 per hour for interior design services. How much gross profit would she earn on each of the clients above, ignoring any difference between actual and appliedoverhead?