Although not required the following overview diagram

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Although not required, the following overview diagram summarizes Chirac’s job-costing system. Audit Support Professional Labor-Hours Indirect Costs Direct Costs INDIRECT COST POOL COST ALLOCATION BASE COST OBJECT: JOB FOR AUDITING PIERRE & CO. DIRECT COST Professional Labor
4-23 4-29 4-29 4-29 (30 min.) Job Job Job order order order costing: costing: costing: actual, actual, actual, normal, normal, normal, and and and variation variation variation from from from normal normal normal costing. costing. costing. 1a. Actual costing Direct cost rate = Actual professional labor costs ÷ Actual professional labor-hours = $1,320,000 ÷ 22,000 hours = $60 per professional-hour Indirect cost rate = Actual support costs ÷ Actual professional labor-hours = $2,400,000 ÷ 22,000 hours = $109.09 per professional-hour 1b. Normal costing Budgeted professional hours = Budgeted hours per lawyer Number of lawyers = 2500 8 = 20,000 hours Direct cost rate = Actual professional labor costs ÷ Actual professional labor-hours = $1,320,000 ÷ 22,000 hours = $60 per professional-hour Indirect cost rate = Budgeted support costs ÷ Budgeted professional labor-hours = $2,000,000 ÷ 20,000 hours = $100 per professional-hour 1c. Variation from normal costing that uses budgeted rates for direct costs Direct cost rate Budgeted professional labor costs Budgeted professional labor-hours = $1,100,000 ÷ 20,000 hours = $55 per professional-hour Indirect cost rate = Budgeted support costs ÷ Budgeted professional labor-hours = $2,000,000 ÷ 20,000 hours = $100 per professional-hour 2. The costs of Ari Apostolus’ will under each method follow: a. Actual Costing Direct costs 4,000 hours $60 per hour $240,000 Indirect costs 4,000 hours $109.09 per hour 436,360 Total costs $676,360 b. Normal Costing Direct costs 4,000 hours $60 per hour $240,000 Indirect costs 4,000 hours $100 per hour 400,000 Total costs $640,000 c. Variation from normal costing Direct costs 4,000 hours $55 per hour $220,000 Indirect costs 4,000 hours $100 per hour 400,000 Total costs $620,000
4-24 4-30 4-30 4-30 (30 min.) Proration Proration Proration of of of overhead overhead overhead . = overhead rate 1. Budgeted manufacturing Budgeted manufacturing overhead cost Budgeted direct manufacturing labor cost $100,000 50% of direct manufacturing labor cost $200,000 2. Overhead allocated = 50% Actual direct manufacturing labor cost = 50% $220,000 =$110,000 Overallocated plant overhead = Actual plant overhead costs – Allocated plant overhead costs = $106,000 – $110,000 = –$4,000 Overallocated plant overhead = $4,000 3a. All overallocated plant overhead is written off to cost of goods sold. Both work in process (WIP) and finished goods inventory remain unchanged. 3b. Overallocated plant overhead prorated based on ending balances: 3c. Overallocated plant overhead prorated based on 2009 overhead in ending balances: Account Account Account Dec. Dec. Dec. 31, 31, 31, 2009 2009 2009 Balance Balance Balance (Before (Before (Before Proration) Proration) Proration) (1) (1) (1) Proration Proration Proration of of of $4,000 $4,000 $4,000 Overallocated Overallocated Overallocated Manuf. Manuf. Manuf. Overhead Overhead Overhead (2) (2) (2) Dec. Dec. Dec. 31, 31, 31, 2009 2009 2009 Balance Balance Balance (After (After (After Proration) Proration) Proration) (3) (3) (3) = (1) (1) (1) (2) (2) (2) WIP $ 50,000 $ 0 $ 50,000 Finished Goods 240,000 0 240,000 Cost of Goods Sold 560,000 4,000 556,000 Total $850,000 $4,000 $846,000 Account Account Account Dec. Dec. Dec. 31, 31, 31, 2009 2009 2009 Balance Balance Balance (Before (Before (Before Proration) Proration) Proration) (1) (1) (1) Balance Balance Balance as as as a Percent Percent Percent of of of Total Total Total (2) (2) (2) = (1) (1) (1) ÷ $850,000 $850,000 $850,000 Proration Proration Proration of of of $4,000 $4,000 $4,000 Overallocated Overallocated Overallocated Manuf. Manuf. Manuf. Overhead Overhead Overhead (3) (3) (3) = (2) (2) (2) $4,000 $4,000 $4,000 Dec. Dec. Dec. 31, 31, 31, 2009 2009 2009 Balance Balance Balance (After (After (After Proration) Proration) Proration) (4) (4) (4) = (1) (1) (1) (3) (3) (3) WIP $ 50,000 0.0588 0.0588 $4,000 =$ 235 $ 49,765 Finished Goods 240,000 0.2824 0.2824 $4,000 = 1,130 238,870 Cost of Goods Sold 560,000 0.6588 0.6588 $4,000 = 2,635 557,365 Total $850,000 1.0000 $4,000 $846,000 Account Account Account Dec. Dec. Dec. 31, 31, 31, 2009 2009 2009 Balance Balance Balance (Before (Before (Before Proration) Proration) Proration) (1) (1) (1) Allocated Allocated Allocated Manuf. Manuf. Manuf.

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