Chapter 3, Problem 3.46AP

Use job costing at an advertising agency (Learning Objectives 3, 4, & 7)

Anderson & Little is an advertising agency. The firm uses a job cost system in which each client is a different “job.” Anderson & Little traces direct labor, software licensing costs, and travel costs directly to each job (client). The company allocates indirect costs to jobs based on a predetermined indirect cost allocation rate based on direct labor hours.

At the beginning of the current year, managing partner Trang Anderson prepared a budget:

Direct labor hours (professional)	17,100 hours
Direct labor costs (professional)	$2,052,000
Support staff salaries	$ 160,000
Rent and utilities	$ 48,000
Supplies	$ 461,300
Lease payments on computer hardware	$ 66,000

During January of the current year, Anderson & Little served several clients. Records for two clients appear here:

	DreamVacation.com	Port Armour Golf Resort
Direct labor hours	750 hours	30 hours
Software licensing costs	$2,500	$150
Travel costs	$8,000	$0

Requirements

1. 1. Compute Anderson & Little’s predetermined indirect cost allocation rate for the current year based on direct labor hours.
2. 2. Compute the total cost of each job.
3. 3. If Anderson & Little wants to earn profits equal to 20% of sales revenue, how much (what total fee) should it charge each of these two clients?
4. 4. Why does Anderson & Little assign costs to jobs?