Answer:
A1 Consulting Services (A1CS)
1. A1CS's total traceable costs for the coming year = $3,581,000 and
Total anticipated overhead = $909,000
2. Predetermined overhead rate = $0.254 per traceable cost.
3. The percentage of cost that A1CS will add to each job to achieve its profit target is:
= 27.8%
4. The total cost of the Mano Manufacturing project is:
= $87,780
5. Mango Manufacturing would be billed $112,183.
6. The approach in requirement 5 is the markup approach, which is based on a percentage added to the total costs. It is different from a margin approach, which adds a percentage of the selling price to the total costs.
7. Other operating costs may include Supervisor's salaries, Equipment depreciation expenses, and Factory property taxes.
8. There may be other professional staff who work on the general projects, whose costs cannot be directly traceable to specific client projects.
Some costs incurred under professional staff may be indirect costs, for example, training of professional staff.
Explanation:
a) Data and Calculations:
Cost Percentage of cost directly
traceable to clients
Professional staff salaries $3 000 000 85% $2,550,000 ($3m*85%)
Administrative support staff 800 000 60% 480,000 ($.8m*60%)
Travel 400 000 80% 320,000 ($.4m*80%)
Photocopying 90 000 90% 81,000 ($90,000*90%)
Other operating costs 200 000 75% 150,000 ($0.2m*75%)
Total $4 490 000
Total traceable costs $3,581,000
Total anticipated overhead = $909,000 ($4,490,000 - $3,581,000)
Predetermined overhead rate = $909,000/$3,581,000 = $0.254
Target profit = $1,250,000
Percentage of cost to add to achieve target profit = 27.8% ($1,250,000/$4,490,000 * 100)
Costs incurred for a project for Mango Manufacturing:
Professional staff salaries $55 000
Administrative support staff 5 000
Travel 6 000
Photocopying 1 200
Other operating costs 2 800
Total traceable costs $70,000
Overhead costs ($0.254) 17,780
Total costs = $87,780
Markup (27.8%) = 24,403
Total billing for services $112,183
