ACC 434 Chapter 4

Although not required the following overview diagram

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Although not required, the following overview diagram is helpful to understand Keating’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 \$ 250,000 ÷2,000 \$125 per hour * \$130,000 ÷2,000 \$65 per hour * Can also be calculated as hours - labor partner budgeted Total costs labor partner budgeted Total = \$250,000 10 2,000 10 × × = \$2,500,000 20,000 = \$125 Can also be calculated as hours - labor associate budgeted Total costs labor associate budgeted Total = \$130,000 25 2,000 25 × × = \$3,250,000 50,000 = \$ 65 2. General Support Secretarial Support Budgeted total costs Divided by budgeted quantity of allocation base Budgeted indirect cost rate \$4,200,000 ÷ 70,000 hours \$60 per hour \$1,300,000 ÷ 20,000 hours \$65 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

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4-29 3. Richardson Punch Direct costs: Professional partners, \$125 × 70; \$125 × 40 Professional associates, \$65 × 50; \$65 × 130 Direct costs Indirect costs: General support, \$60 × 120; \$60 × 170 Secretarial support, \$65 × 70; \$65 × 40 Indirect costs Total costs \$8,750 3,250 \$ 12,000 7,200 4,550 11,750 \$23,750 \$5,000 8,450 \$ 13,450 10,200 2,600 12,800 \$26,250 4. Richardson Punch Single direct - Single indirect (from Problem 4-32) Multiple direct – Multiple indirect (from requirement 3 of Problem 4-33) Difference \$12,000 23,750 \$11,750 undercosted \$18,000 26,250 \$ 8,250 undercosted The Richardson and Punch jobs differ in their use of resources. The Richardson job has a mix of 58% partners and 42% associates, while Punch has a mix of 24% partners and 76% 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 4-32 for the Richardson job by 50.5% (from \$12,000 to \$23,750) and the Punch Job by 31.4% (from \$18,000 to \$26,500).
4-30 4-34 (20 25 min.) Proration of overhead. 1. Budgeted manufacturing overhead rate is \$4,800,000 ÷ 80,000 hours = \$60 per machine-hour. 2. Manufacturing overhead underallocated = Manufacturing overhead incurred Manufacturing overhead allocated = \$4,900,000 – \$4,500,000* = \$400,000 *\$60 × 75,000 actual machine-hours = \$4,500,000 a. Write-off to Cost of Goods Sold Account (1) Account Balance (Before Proration) (2) Write-off of \$400,000 Underallocated Manufacturing Overhead (3) Account Balance (After Proration) (4) = (2) + (3) Work in Process Finished Goods Cost of Goods Sold Total \$ 750,000 1,250,000 8,000,000 \$10,000,000 \$ 0 0 400,000 \$400,000 \$ 750,000 1,250,000 8,400,000 \$10,400,000 b. Proration based on ending balances (before proration) in Work in Process, Finished Goods and Cost of Goods Sold. Account (1) Account Balance (Before Proration) (2) Proration of \$400,000 Underallocated Manufacturing Overhead (3) Account Balance (After Proration) (4) = (2) + (3) Work in Process Finished Goods Cost of Goods Sold Total \$ 750,000 1,250,000 8,000,000 \$10,000,000 ( 7.5%) (12.5%) (80.0% ) 100.0% 0.075 × \$400,000 = \$ 30,000 0.125 × \$400,000 = 50,000 0.800 × \$400,000 = 320,000 \$400,000 \$ 780,000 1,300,000 8,320,000 \$10,400,000

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4-31 c. Proration based on the allocated overhead amount (before proration) in the ending balances of Work in Process, Finished Goods, and Cost of Goods Sold.
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