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Cost Accounting

Web Creations, a Website design and maintenance company, uses job-costing system has a single direct-cost category (professional services) and a single indirect-cost pool (client support). Client support costs are allocated to individual jobs using actual professional service-hours. Budgeted and actual amounts for 2004 are as follows:

Budget for 2004
Professional services staff compensation $10,000,000
Client support costs $6,500,000
Professional service-hours billed to client 50,000 hours

Actual results for 2004
Client support costs $6,220,000
Professional service-hours billed to clients 55,000 hours
Actual professional services staff rate $225 per hour

1. Compute the direct-cost rate per professional service-hour and the indirect-cost rate per professional service-hour for 2004 under a) actual b) normal costing, and c) the variation from normal costing that uses budgeted ranges for direct costs.

2. In 2004, Web Creations provided services to Amazing.com Web Creations budgeted to spend 500 professional service-hours. Actual professional service-hours were 575. Compute the job cost of Amazing.com project using a) actual costing b) normal costing, and c) the variation from normal costing that uses budgeted rates for direct costs. Explain any differences in the job cost

Solution Summary

Solution contains computation of the direct-cost rate per professional service-hour and the indirect-cost rate per professional service-hour for 2004 under a) actual b) normal costing, and c) the variation from normal costing that uses budgeted ranges for direct costs.

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