# 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.