Question 1 A1 Consulting Services (A1CS) provides various types of consulting services throughout Fiji. It uses job costing system to accumulate the cost of client projects.

Traceable costs are charged directly to individual clients.

Other costs incurred by A1CS, but not identifiable with specific clients, are charged to jobs by using a predetermined overhead rate.

Clients are billed for directly chargeable costs, overhead and a markup for the profit margin.

The following costs have been anticipated for the coming year:

Cost Percentage of cost directly traceable to clients

Professional staff salaries $3 000 000 85%

Administrative support staff 800 000 60%

Travel 400 000 80%

Photocopying 90 000 90%

Other operating costs 200 000 75%

Total $4 490 000

A1CS’s management wishes to make a profit of $1 250 000 for the firm and plans to add percentage markup on total cost to achieve that figure.

On 23 May, A1CS completed work on a project for Mango Manufacturing. The following costs were incurred:

Cost

Professional staff salaries $55 000

Administrative support staff 5 000

Travel 6 000

Photocopying 1 200

Other operating costs 2 800

Note: If rounding off is required, round off your figures to 2 d. p.

Required:

1. Determine A1CS’s total traceable costs for the coming year and the firm’s total anticipated overhead. (4 marks)

2. Calculate the predetermined overhead rate, assuming the cost driver is traceable costs. (3 marks)

3. What percentage of cost will A1CS add to each job to achieve its profit target? (3 marks)

4. Determine the total cost of the Mango Manufacturing project. (5 marks)

5. How much Mango Manufacturing would be billed for the services performed? (5 marks)

6. Compare the approach used in requirement 6 with client billing system described in Topic 8. (4 marks)

7. Only 75 per cent of A1CS’s other operating cost is directly traceable to specific client projects. Identify three costs that would be included in other operating costs and would be difficult to trace to clients. (3 marks)

8. 85 per cent of the professional staff cost is directly traceable to specific client projects. Give two reasons that would explain why this figure isn’t 100 per cent. (3 marks

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