Curtis Company is an architectural firm specializing in hom

Curtis & Company is an architectural firm specializing in home remodeling for private clients and new office buildings for corporate clients.

Curtis & Company charges customers at a billing rate equal to 135% of the client\'s total job cost. A client\'s total job cost is a combination of 1) professional cost based on the professional hours spent on the client\'s job, and 2) operating costs allocated to the client\'s job. Curtis currently allocates operating costs to jobs based on the number of professional hours spent on the job.

Curtis estimates its five professionals will work a total of 9,000 hours on client jobs during the year, and their salaries will total $990,000. All operating costs other than professional salaries (travel reimbursements, copy costs, secretarial salaries, office lease, etc.) can be grouped into three activities. Relevant information for these activities are estimated as follows:

Amy Lee hired Curtis & Company to design her kitchen remodeling. A total of 24 professional hours were spent on this job. In addition, Amy\'s remodeling job required one of the professionals to travel back and forth to her house for a total of 100 miles. The blueprints had to be copied five times because Amy changed the plans several times. In addition, 15 hours of secretarial time were used lining up the subcontractors for the job.

What is the total cost of Amy Lee\'s remodeling job under the current single-driver system?

What would be the total cost of Amy Lee\'s remodeling job under an activity-based costing system?

Total Activity Cost Total Usage by Total Usage by Activity Transportation to clients Blueprint copying Office support Total operating costs Cost Driver Corporate Clients 3,000 miles 240 copies 2,500 hours Private Clients 10,300 miles 950 copies 2,600 hours $10,200 Round-trip mileage to clients 36,200 umber of coples Number of copies 188,900 Secretarial time $235,300

Solution

Answer 1. Total Overhead = $990,000 (professional Cost) + $235,300 (Total Operating Costs) Total Overhead = $1,225,300 Predetermined Overhead Rate = $1,225,300 (Total MOH) / 9,000 Hrs (Total professional hours) Predetermined Overhead Rate = $136.14 per professional hour (Approx.) Calculation of Total Cost of Job to Amy Lee Under Traditional Costing Job Cost - 24 Hrs X $136.14           3,267.47 Add: Profit Margin - 135%           4,411.08 Total Job Cost           7,678.55 Answer 2. Calculation of Activity Rate Total cost Allocation Base Allocation Rate Salaries            990,000                          9,000 Prof. Hrs                110.00 Per Prof. Hr Transportation              10,200                        13,300 miles                     0.77 per mile Bluprint Copying              36,200                          1,190 copies                   30.42 per copy Office Support            188,900                          5,100 secretarial hrs                   37.04 per secretarial hr Total Overhead        1,225,300 Assigning Cost to Amy Lee\'s Remodeling Job Using ABC Method Activity Based Overhead Rate Commercial Cost Driver Incurred OH Allocated Salaries              110.00 Per Prof. Hr                            24 Prof. Hrs                   2,640.00 Transportation                   0.77 per mile                          100 miles                         76.69 Bluprint Copying                 30.42 per copy                               5 copies                       152.10 Office Support                 37.04 per secretarial hr                            15 secretarial hrs                       555.59 Total Overhead Cost                   3,424.38 Calculation of Total Cost of Job to Amy Lee Under ABC Costing Job Cost -           3,424.38 Add: Profit Margin - 135%           4,622.91 Total Job Cost           8,047.29