Job c o s ting, engineering c onsulting firm.

Job c o s ting, engineering c onsulting firm.

Solucions SA, an engineering consulting firm, specialises in analysing the structural causes of major building catastrophes. Its job-costing system in 2007 had a single direct-cost cat- egory (professional labour) and a single indirect-cost pool (general support). The allocation base for indirect costs is professional labour-costs. Actual costs for 2007 were:

Direct costs

Professional labour €100 million

Indirect costs

_{General support 190 million}

_{–––––––––––––}

_{T otal costs €290 million}

–––––––––––––

The following costs were included in the general support indirect-cost pool:

Technical specialists’ costs €8 million Telephone/fax machine 6 million Computer time 37 million Photocopying 4 million

_{––––––––––––}

_{T otal costs €55 million}

––––––––––––

The firm’s data-processing capabilities now make it feasible to trace these costs to individ- ual jobs. The managing partner is considering whether more costs than just professional labour should be traced to each job as a direct cost. In this way, the firm would be better able to justify billings to clients.

In late 2007, arrangements were made to expand the number of direct-cost categories and to trace them to seven client engagements. Two of the case records showed the following:

Client case Client case

304 308

Professional labour	€200 000	€200 000
Technical specialists’ costs	20 000	60 000
Telephone/fax machine	10 000	20 000
Computer time	20 000	40 000

_{Photocopying 10 000 20 000}

_{–––––––– – –––––––––}

_{T otal direct costs €260 000 €340 000}

––––––––– –––––––––

Required

1 Present an overview diagram of the 2007 job-costing system. What was the actual indi- rect-cost rate per professional labour-euro?

2 Assume that the €55 million of costs included in the 2007 general-support indirect-cost pool were reclassified as direct costs. The result is a system with five direct-cost cat- egories. Calculate the revised indirect-cost rate as a percentage of:

a Professional labour-costs

b Total direct costs.

3 Calculate the total costs of jobs 304 and 308 using:

a The 2007 costing system with a single direct-cost category and a single indirect-cost pool (professional labour-costs as the allocation base)

b A costing system with five direct-cost categories and a single indirect-cost pool (pro- fessional labour-costs as the allocation base)

c A costing system with five direct-cost categories and a single indirect-cost pool (total direct costs as the allocation base).

4 Assume that clients are billed at 120% of total job costs (that is, a mark-up on cost of

20%). Calculate the billings in requirement 3 for jobs 304 and 308 for the (a), (b) and (c)

costing systems.

5 Which method of job costing in requirement 3 do you favour? Explain.

Is this the question you were looking for? If so, place your order here to get started!