Comparing costs from ABC and single-rate systems This problem continues the Davis Consulting, Inc. situation from Problem P17-40 of Chapter 17. Recall that Davis allocated indirect costs to jobs based on a predetermined overhead allocation rate, computed as a percentage of direct labor costs. Because Davis provides a service, there are no direct materials costs. Davis is now considering using an ABC system. Information about ABC costs follows:
1. Compute the total cost for each job. The cost of direct labor is $180 per hour.
2. Is the job cost greater or less than that computed in Problem P17-40 for each job? Why?
3. If Davis wants to earn an operating income equal to 25% of the total cost, how much (what fee) should it charge each of these two clients?
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