Creative Solutions designs Web pages for clients in the education sector. The company’s job-costing system has a single direct cost category (Web-designing labor) and a single indirect cost pool composed of all overhead costs. Overhead costs are allocated to individual jobs based on direct labor-hours. The company employs six Web designers. Budgeted and actual information regarding Creative Solutions follows: Budget for 2014: Direct labor costs ………. $ 273,000 Direct labor-hours ………. 10,500 Overhead costs ………. $ 157,500 Actual results for 2014: Direct labor costs ……… $ 285,000 Direct labor-hours ………. 11,400 Overhead costs ………. $ 159,600 Required 1. Compute the direct cost rate and the indirect cost rate per Web-designing labor-hour for 2014 under (a) Actual costing, (b) Normal costing, (c) The variation from normal costing that uses budgeted rates for direct costs. 2. Which method would you suggest Creative Solutions use? Explain. 3. Creative Solutions’ Web design for Greenville Day School was budgeted to take 86 direct labor-hours. The actual time spent on the project was 79 hours. Compute the cost of the Greenville Day School job using (a) Actual costing, (b) Normal costing, (c) The variation from normal costing that uses budgeted rates for direct cost.
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