Concept explainers
Service industry, job costing, two direct- and two indirect-cost categories, law firm (continuation of 4-37). Kidman has just completed a review of its job-costing system. This review included a detailed analysis of how past jobs used the firm’s resources and interviews with personnel about what factors drive the level of indirect costs. Management concluded that a system with two direct-cost categories (professional partner labor and professional associate labor) and two indirect-cost categories (general support and secretarial support) would yield more accurate
Professional Partner Labor | Professional Associate Labor | |
Number of professionals | 5 | 25 |
Hours of billable time per professional | 1,500 per year | 1,500 per year |
Total compensation (average per professional) | $210,000 | $75,000 |
Budgeted information for 2017 relating to the two indirect-cost categories is as follows:
General Support | Secretarial Support | |
Total costs | $2,025,000 | $450,000 |
Cost-allocation base | Professional labor-hours | Partner labor-hours |
- 1. Compute the 2017 budgeted direct-cost rates for (a) professional partners and (b) professional associates.
Required
- 2. Compute the 2017 budgeted indirect-cost rates for (a) general support and (b) secretarial support.
- 3. Compute the budgeted costs for the Richardson and Punch jobs; given the following information:
Richardson, Inc. | Punch, Inc. | |
Professional partners | 48 hours | 32 hours |
Professional associates | 72 hours | 128 hours |
- 4. Comment on the results in requirement 3. Why are the job costs different from those computed in Problem 4-37?
- 5. Would you recommend Kidman & Associates use the job-costing system in Problem 4-37 or the job-costing system in this problem? Explain.
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Chapter 4 Solutions
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
Additional Business Textbook Solutions
Principles of Accounting Volume 2
Cost Accounting (15th Edition)
Financial Accounting, Student Value Edition (5th Edition)
Managerial Accounting (4th Edition)
Horngren's Accounting (11th Edition)
Horngren's Financial & Managerial Accounting, The Managerial Chapters (6th Edition)
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