Job costing: consulting firm WA Consulting Services Pty Ltd (WACS) provides consulting services throughout Western Austral and uses a job costing system to accumulate the cost of client projects. Traceable costs are charged directly to individual clients; in contrast, other costs incurred by WACS, but not identifiable with specific clients, are charged to jobs by using a predetermined overhead rate. Clients are billed for directly chargeable costs, overhead and a markup for the profit margin.
WA Consulting Services financial controller, Eloise Sutch, anticipates the following costs for the coming year:
The firm’s management wishes to make a $640 000 profit for the firm and plans to add a percentage markup on total cost to achieve that figure.
On 10 March, WACS completed work on a project for Martin Manufacturing. The following costs were incurred:
Cost
Professional staff salaries………………………………………..$41,000
Administrative support staff………………………………………..2600
Travel……………………………………………………………….4500
Photocopying………………………………………………………..500
Other operating costs……………………………………………….1400
Required:
1. Determine WACS’ total traceable costs for the coming year and the firm’s total anticipated overhead.
2. Calculate the predetermined overhead rate, assuming the cost driver is traceable costs.
3. What percentage of cost will WACS add to each job to achieve its profit target?
4. Determine the total cost of the Martin Manufacturing project.
5 How much would Martin be billed for the services performed? Compare this approach to the client billing system described in this chapter.
6. Notice that only 70 per cent of WACS’ other operating cost is directly traceable to specific client projects. Identify several costs that would be included in other operating costs and would be difficult to trace to clients.
7. Notice that 80 per cent of the professional staff cost is directly traceable to specific client projects. Give several reasons that would explain why this figure isn’t too per cent.
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