4 comment on the results in requirement 3 why are the

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Managerial Accounting
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Chapter 4 / Exercise 2
Managerial Accounting
Warren/Tayler
Expert Verified
4. Comment on the results in requirement 3. Why are the job costs different from those computed in Problem 4-32? 5. Would you recommend Kidman & Associates use the job-costing system in Problem 4-32 or the job-costing system in this problem? Explain. General Support Secretarial Support Total costs $2,025,000 $450,000 Cost-allocation base Professional labor-hours Partner labor-hours 4-39
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Managerial Accounting
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Chapter 4 / Exercise 2
Managerial Accounting
Warren/Tayler
Expert Verified
SOLUTION Although not required, the following overview diagram is helpful to understand Kidman’s job- costing system. 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 1. Professional Partner Labor Professional Associate Labor Budgeted compensation per professional Divided by budgeted hours of billable time per professional Budgeted direct-cost rate $ 210,000 ÷1,500 $140 per hour * $75,000 ÷1,500 $50 per hour * Can also be calculated as Total budgeted partner labor costs Total budgeted partner labor - hours = $210,000 5 1,500 5 = $1,050,000 7,500 = $140 Can also be calculated as Total budgeted associate labor costs Total budgeted associate labor - hours = $75,000 25 1,500 25 = $1,875,000 37,500 = $50 2. General Support Secretarial Support Budgeted total costs Divided by budgeted quantity of allocation base Budgeted indirect cost rate $2,025,000 ÷ 45,000 hours $45 per hour $450,000 ÷ 7,500 hours $60 per hour 4-40
3. Richardson Punch Direct costs: Professional partners, $140 48 hr.; $140 32 hr. Professional associates, $50 72 hr.; $50 128 hr. Direct costs Indirect costs: General support, $45 120 hr.; $45 160 hr. Secretarial support, $60 48 hr.; $60 32 hr. Indirect costs Total costs $6,720 3,600 $10,320 5,400 2,880 8,280 $18,600 $4,480 6,400 $10,880 7,200 1,920 9,120 $20,000 4. Richardson Punch Single direct – Single indirect (from Problem 4-32) Multiple direct – Multiple indirect (from requirement 3 of Problem 4-33) Difference $14,400 18,600 $ 4,200 undercosted $19,200 20,000 $ 800 undercosted The Richardson and Punch jobs differ in their use of resources. The Richardson job has a mix of 40% partners and 60% 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 Punch job, on the other hand, has a mix of partner and associate-related hours (1:4) that is only slightly higher than the mix of partner and associate hours for the firm as a whole (1:5). The refined-costing system in Problem 4-33 increases the reported cost in Problem 4-32 for the Richardson job by 29.17% (from $14,400 to $18,600) and the Punch job by a much smaller 4.17% (from $19,200 to $20,000). 5. I would recommend that Kidman & Associates use the job costing system in this problem with two direct- and two indirect- cost categories. Kidman & Associates should use multiple categories of direct costs (partner labor and professional labor) because the costs of the different categories of labor are very different and different jobs use these direct labor resources in different proportions. The system with only one

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