Question

Score: 0 of 1 pt 1 of 5 (0 complete) E4-33 (similar to) Chirac & Partners, a Quebec-based public accounting partnership, specializes in audit services. Its job-costing system has a single direct-cost category (pro the Audit Support Department). Audit support costs are allocated to individual jobs using actual professional labor hours. Chirac & Partners employs 10 profi follows: Click the icon to view the data.) Read the requirements. Requirement 1. Compute the direct-cost rate and the Indirect-cost rato per professional labor-hour for 2017 under (a) actual costing, (b) normal costing, an Begin by identifying the formula to calculate the actual indirect-cost rate. Actual indirect-cost rate

Answer 1

1)
Actual direct cost rate for professional labor =	$52	per professional labor-hour	Given
Actual indirect cost rate  = Actual indirect cost / Actual direct labor hours
Actual indirect cost rate  = 775,000 / 15,500	$       50.00	per professional labor-hour
Budgeted direct cost rate for professional labor = Budgeted direct cost / Budgeted direct labor hours
Budgeted direct cost rate for professional labor = $975,000/15000	$       65.00	per professional labor-hour
Budgeted indirect cost rate = Budgeted indirect cost / Budgeted direct labor hours
Budgeted indirect cost rate = $675,000/15000	$       45.00	per professional labor-hour
	Actual Costing	Normal Costing	Variation of Normal Costing
Direct-Cost Rate	$52	$52	$                        65.00
	Actual rate	Actual rate	Budgeted rate
Indirect-Cost Rate	$52	$                    45.00	$                        45.00
	Actual rate	Budgeted rate	Budgeted rate
2)
Chirac &  Partners  should  choose  a  job-costing  system  based  on  the  direct  cost information available to them. If Chirac knows direct costs as the jobs are being done, I would recommend Chirac  use  normal  costing  over  actual  costing  by  calculating  a  budgeted  indirect cost  rate  to  cost  jobs. Normal  costing  enables  Chirac  to  use  the  budgeted indirect  cost  rate calculated  at  the  beginning  of  the  year  to  estimate  the  cost  of  a  job as  soon  as  the  job  is completed. Under  actual costing,  Chirac  would  only  determine the  cost  of  a  job  at  the  end  of  the  year  when  actual indirect  costs  are  known. If  Chirac  does  not  know  direct  costs  as  the jobs  are  being  completed,  I  would recommend that Chirac use the variation of normal costing that calculates a budgeted direct cost rate.
3)
	Actual Costing	Normal Costing	Variation of Normal Costing
Direct-Cost = 190 hours x Direct cost Rate	$9,880	$9,880	$12,350
Indirect-Cost Rate = 190 hours x Direct cost rate	$9,880	$8,550	$8,550
Total Job Costs	$19,760	$18,430	$20,900
All three costing systems use the actual professional labor time of 190 hours. The budgeted 170 hours for the Pierre Enterprises audit job is not used in job costing.  However, Chirac may have used the 170 hour number in bidding for the audit.
The actual costing figure of $19,760 is greater than the normal costing figure of $18,430 because the actual indirect-cost rate ($52) is more than the budgeted indirect-cost rate ($45). The normal costing figure of $18,430 is less than the variation of normal costing  of $20900 because the actual direct-cost rate ($52) is less than the budgeted direct-cost rate ($65)