Question

Keating & Associates is a law firm specializing in labor relations and employee related work. It employs 30 professionals (5 partners and 25 associates) who work directly with its clients. The average budgeted total compensation per professional for 2017 is $97,500. Each professional is budgeted to have $1,500 billable hours to clients in 2017. All professional work for clients to their maximum 1,500 billable hours available. All professional labor costs are included in a single direct cost category and are traced to jobs on a per hour basis. All costs of Keating & Associates other than professional labor costs are included in a single indirect cost pool (legal support) and are allocated to jobs using professional labor hours as the allocation base. The budgeted level of indirect costs is 2017 is $2,475,000.

1. Identify the components of the overview diagram of Keating's job costing system.
2. Compute the 2017 budgeted direct cost rate per hour of professional labor.
3. Compute the 2017 budgeted indirect cost rate per hour of professional labor.
4. Keating & Associates is considering bidding in two jobs
   a. Litigation work for Richardson Inc. which requires 115 budgeted hours of professional labor.
   b. Labor contract work for Punch, Inc.. which requires 140 budgeted hours if professional labor. Prepare a cost estimate for each job.

RUAUTY ASSU Des ouier than professional labor costs are included in a single indirect cost pool deda in 2017 is $2,475,000 Read the requirements Requirement 1. Identify the components of the overview diagram of Keating's job-costing system c} E } Choose from any drop-down list and then click Check Answer.

Answer 1

1.

A	Indirect cost pool
B	Legal support
C	Cost allocation base
D	Professional labor hours
E	Cost object: Client job
F	Indirect costs
G	Direct costs
H	Direct costs
I	Professional labor

2. Budgeted direct cost rate = Budgeted compensation per professional/Budgeted direct labor hours per professional = $97500/1500 = $65 per hour

3. Budgeted indirect cost rate = Budgeted indirect costs/Budgeted total direct labor hours = $2475000/(30 x 1500) = $2475000/45000 = $55 per hour

4. Cost Estimate:

	Richardson Inc.	Punch Inc.
Professional labor cost	7475	9100
(115 x $65);(140 x $65)
Legal support cost	6325	7700
(115 x $55);(140 x $55)
Total estimated cost $	13800	16800