Budgeted manufacturing overhead divided by the

Budgeted manufacturing overhead divided by the budgeted quantity of the allocation base:
Machining Department overhead:
$1,500,000
30,000
= $50 per machine-hour
Assembly Department overhead:
$5,100,000
$3,000,000
= 170% of direct manuf. labor costs
2. Machining department overhead allocated, 2,800 hours  $50 $140,000
Assembly department overhead allocated, 170%  $19,000 32,300
Total manufacturing overhead allocated to Job 494 $172,300
3. Machining Dept. Assembly Dept.
Actual manufacturing overhead $1,800,000 $ 5,300,000
Manufacturing overhead allocated,
$50  33,000 machine-hours 1,650,000 —
170%  $3,200,000 — 5,440,000
Underallocated (Overallocated) $ 150,000 $ (140,000 )
4-14

Datar, Cost Accounting, 16e
4-26 Job costing, consulting firm. Frontier Partners, a management consulting firm, has the
following condensed budget for 2017:
Frontier has a single direct-cost category (professional labor) and a single indirect-cost pool
(client support). Indirect costs are allocated to jobs on the basis of professional labor costs.
Required:
1. Prepare an overview diagram of the job-costing system. Calculate the 2017 budgeted
indirect-cost rate for Frontier Partners.
2. The markup rate for pricing jobs is intended to produce operating income equal to 10% of
revenues. Calculate the markup rate as a percentage of professional labor costs.
3. Frontier is bidding on a consulting job for Sentinel Communications, a wireless
communications company. The budgeted breakdown of professional labor on the job is as
follows:
Calculate the budgeted cost of the Sentinel Communications job. How much will Frontier bid for
the job if it is to earn its target operating income of 10% of revenues?
4-15

Datar, Cost Accounting, 16e
SOLUTION
(20  25 min.) Job costing, consulting firm.
1. Budgeted indirect-cost rate for client support can be calculated as follows:
Budgeted indirect-cost rate = $25,000,000 ÷ $20,000,000 = 125% of professional labor
costs
2. At the budgeted revenues of $50,000,000 Frontier’s operating income of $5,000,000 equals
10% of revenues.
Markup rate = $50,000,000 ÷ $20,000,000 = 250% of direct professional labor costs
4-16
COST
ALLOCATION
BASE



COST OBJECT:
JOB FOR
CONSULTING
CLIENT
DIRECT
COSTS

Indirect Costs
Direct Costs
INDIRECT
COST
POOL
Professional
Labor Costs
Professional
Labor Costs
Professional
Labor
Client
Support

Datar, Cost Accounting, 16e