Time in Analysis Manufacturing Direct Labor DIRECT COSTS Direct Manufacturing

Time in analysis manufacturing direct labor direct

This preview shows page 12 - 17 out of 33 pages.

Time in Analysis Manufacturing Direct Labor DIRECT COSTS Direct Manufacturing Labor
Image of page 12
5-28 (15 min.) Job costing with single direct-cost category, single indirect-cost pool, law firm. 1. Pricing decisions at Wigan Associates are heavily influenced by reported cost numbers. Suppose Wigan is bidding against another firm for a client with a job similar to that of Widnes Coal. If the costing system overstates the costs of these jobs, Wigan may bid too high and fail to land the client. If the costing system understates the costs of these jobs, Wigan may bid low, land the client, and then lose money in handling the case. 2. Widnes St. Helen’s Coal Glass Total Direct professional labor, $70 × 104; $70 × 96 $ 7,280 $ 6,720 $14,000 Indirect costs allocated, $105 × 104; $105 × 96 10,920 10,080 21,000 Total costs to be billed $18,200 $16,800 $35,000 5-13
Image of page 13
5-14
Image of page 14
5-30 (30 min.) Job costing with multiple direct-cost categories, multiple indirect-cost pools, law firm (continuation of 5-28 and 5-29). 1. Widnes St. Helen’s Coal Glass Total Direct costs: Partner professional labor, $100 × 24; $100 × 56 $ 2,400 $ 5,600 $ 8,000 Associate professional labor, $50 × 80; $50 × 40 4,000 2,000 6,000 Research support labor 1,600 3,400 5,000 Computer time 500 1,300 1,800 Travel and allowances 600 4,400 5,000 Telephones/faxes 200 1,000 1,200 Photocopying 250 750 1,000 Total direct costs 9,550 18,450 28,000 Indirect costs allocated: Indirect costs for partners, $57.50 × 24; $57.50 × 56 1,380 3,220 4,600 Indirect costs for associates, $20 × 80; $20 × 40 1,600 800 2,400 Total indirect costs 2,980 4,020 7,000 Total costs to be billed $12,530 $22,470 $35,000 Widnes St. Helen’s Comparison Coal Glass Total Single direct cost/ Single indirect cost pool $18,200 $16,800 $35,000 Multiple direct costs/ Single indirect cost pool $14,070 $20,930 $35,000 Multiple direct costs/ Multiple indirect cost pools $12,530 $22,470 $35,000 The higher the percentage of costs directly traced to each case, and the greater the number of homogeneous indirect cost pools linked to the cost drivers of indirect costs, the more accurate the product cost of each individual case. The Widnes and St. Helen’s cases differ in how they use “resource areas” of Wigan Associates: Widnes St. Helen’s Coal Glass Partner professional labor 30.0% 70.0% Associate professional labor 66.7 33.3 Research support labor 32.0 68.0 Computer time 27.8 72.2 Travel and allowances 12.0 88.0 Telephones/faxes 16.7 83.3 Photocopying 25.0 75.0 5-15
Image of page 15
The Widnes Coal case makes relatively low use of the higher-cost partners but relatively higher use of the lower-cost associates than does St. Helen’s Glass. As a result, it also uses less of the higher indirect costs required to support partners compared to associates. The Widnes Coal case also makes relatively lower use of the support labor, computer time, travel, phones/faxes, and photocopying resource areas than does the St. Helen’s Glass case. 2. The specific areas where the multiple direct/multiple indirect (MD/MI) approach can provide better information for decisions at Wigan Associates include: Pricing and product (case) emphasis decisions . In a bidding situation using single direct/single indirect (SD/SI) or multiple direct/single indirect (MD/SI) data, Wigan may win bids for legal cases on which it will subsequently lose money. It may also not win bids on which it would make money with a lower-priced bid.
Image of page 16
Image of page 17

You've reached the end of your free preview.

Want to read all 33 pages?

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes