4 24 4 31 15 20 min service industry job costing law

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4-24 4-31 (15 20 min.) Service industry, job costing, law firm. 1. Professional Labor-Hours Legal Support COST OBJECT: JOB FOR CLIENT INDIRECT COST POOL COST ALLOCATION BASE } DIRECT COST Indirect Costs Direct Costs Professional Labor 2. Budgeted professional labor-hour direct cost rate = Budgeted direct labor compensation per professional Budgeted direct labor-hours per professional = $104,000 1,600 hours = $65 per professional labor-hour Note that the budgeted professional labor-hour direct-cost rate can also be calculated by dividing total budgeted professional labor costs of $2,600,000 ($104,000 per professional 25 professionals) by total budgeted professional labor-hours of 40,000 (1,600 hours per professional 25 professionals), $2,600,000 40,000 = $65 per professional labor-hour. Budgeted indirect cost rate = Budgeted total costs in indirect cost pool Budgeted total professional labor-hours = 25 hours 1,600 $2,200,000 = $2,200,000 40,000 hours = $55 per professional labor-hour 4. Richardson Punch Direct costs: Professional labor, $65 100; $65 150 Indirect costs: Legal support, $55 100; $55 150 $ 6,500 5,500 $12,000 $ 9,750 8,250 $18,000 3.
4-25 4-32 (25 30 min.) Service industry, job costing, two direct- and indirect-cost categories, law firm (continuation of 4-31). Although not required, the following overview diagram is helpful to understand K eating’s job - costing system. 1. Professional Partner Labor Professional Associate Labor Budgeted compensation per professional Divided by budgeted hours of billable time per professional Budgeted direct-cost rate $ 200,000 ÷1,600 $125 per hour * $80,000 ÷1,600 $50 per hour * Can also be calculated as Total budgeted partner labor costs Total budgeted partner labor - hours = $200,000 5 1,600 5 = 000 , 8 $1,000,000 = $125 Can also be calculated as Total budgeted associate labor costs Total budgeted associate labor - hours = $80,000 20 1,600 20 = $1,600,000 32 000 , = $ 50 2. General Support Secretarial Support Budgeted total costs Divided by budgeted quantity of allocation base Budgeted indirect cost rate $1,800,000 ÷ 40,000 hours $45 per hour $400,000 ÷ 8,000 hours $50 per hour Professional Labor-Hours General Support COST OBJECT: JOB FOR CLIENT INDIRECT COST POOL COST ALLOCATION BASE } DIRECT COST Indirect Costs Direct Costs Partner Labor-Hours Secretarial Support Professional Associate Labor Professional Partner Labor
4-26 3. Richardson Punch Direct costs: Professional partners, $125 60; $125 30 Professional associates, $50 40; $50 120 Direct costs Indirect costs: General support, $45 100; $45 150 Secretarial support, $50 60; $50 30 Indirect costs Total costs $7,500 2,000 $ 9,500 4,500 3,000 7,500 $17,000 $3,750 6,000 $ 9,750 6,750 1,500 8,250 $18,000 4. Richardson Punch Single direct - Single indirect (from Problem 4-31) Multiple direct Multiple indirect (from requirement 3 of Problem 4-32) Difference $12,000 17,000 $5,000 undercosted $18,000 18,000 no change The Richardson and Punch jobs differ in their use of resources. The Richardson job has a mix of 60% partners and 40% associates, while Punch has a mix of 20% partners and 80% associates. Thus, the Richardson job is a relatively high user of the more costly partner-related resources (both direct partner costs and indirect partner secretarial support). The refined-costing system in Problem 4-32 increases the reported cost in Problem 4-31 for the Richardson job by 41.7% (from $12,000 to $17,000).
4-27 4-33 (20 25 min.) Proration of overhead. 1.

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