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Job 4 carries $2,800 of direct labor, $520 of directly related costs and $980 of applied overhead, and the agency earns a 60% profit on each job. What is the invoice amount?
A$5,160
B$6,020
C$7,740
D$6,880
Answer & Solution
Correct answer: D. $6,880
1. Direct labor of $2,800 comes from 20 designer hours at $140 per hour.
2. Travel of $340, supplies of $60 and domain filing fees of $120 add $520 of directly related costs.
3. Applied overhead is 35% of the $2,800 direct labor, which is $980.
4. Total cost of the project is $2,800 plus $520 plus $980, which is $4,300.
5. A 60% profit means the invoice is the cost multiplied by 1.6.
6. The invoice is $4,300 times 1.6, which is $6,880, debited to Accounts Receivable against Fees Earned.
7. $7,740 applies the markup to a cost of $4,837, which no combination of these figures gives.
8. $6,880 also sits against a separate entry crediting Development Costs for the $4,300 of accumulated cost.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 2.3.1 Comprehensive Example of Job Order Costing Transactions for a Service Company_
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