Question

Winder, Knotter, and Nale is a small law firm that has 10 partners and 10 support people. The firm employs a job-order costing system to accumulate costs chargeable to each client, and it is organized into two departments-the Research and Documents Department and the Litigation Department. The firm uses predetermined overhead rates to charge the costs of these departments to its clients. At the beginning of the current year, the firm's management made the following estimates for the year: Department Research and Litigation Documents Research-hours 20,900 9,450 $ 19,800 Direct lawyer-hours Materials and supplies Direct lawyer cost Departmental overhead cost 16,900 $ 5,900 $845,000 $338,000 $444,150 $731,500 The predetermined overhead rate in the Research and Documents Department is based on research-hours, and the rate in the Litigation Department is based on direct lawyer cost. The costs charged to each client are made up of three elements: materials and supplies used, direct lawyer costs incurred, and an applied amount of overhead from each department in which work is performed on the case. Case 618-3 was initiated on February 10 and completed on June 30. During this period, the following costs and time were recorded on the case: Department Research and Litigation Documents Research-hours 27 Direct lawyer-hours Materials and supplies Direct lawyer cost 18 51 68 39 $ 810 $2,550

Answer 1

Predetermined overhead rate = Estimated Overheads/Estimated Driver
Research & Documents	35	per Research hour
Litigation	40%	of Direct lawyer cost
2.Overhead cost applied = Driver used*Predetermined rate
1,965
3.Total cost charged
	R&D	Litigation	Total
Material & Supplies	68	39	107
Direct Attorney cost	810	2550	3360
Overhead applied	945	1020	1965
Total	1823	3609	5432
4
Department	Applied	Actual Overhead	Difference	Under/Over
R&D	833000	797300	35700	Overapplied
Litigation	305660	316200	10540	Underapplied

Ε 1 Predetermined overhead rate = Estimated Overheads/Estimated Driver 2 Research & Documents 3 Litigation =731500/20900 per Research hour =338000/845000 of Direct lawyer cost 4 5 2.Overhead cost applied - Driver used* Predetermined rate 6 =27*B2+2550*B3 R&D Litigation 68 39 8 3.Total cost charged 9 10 Material & Supplies 11 Direct Attorney cost 12 Overhead applied 13 Total 810 2550 =B2*27 =C11*40% =SUM(B10:B12) =SUM(C10:C12) Total =B10+C10 =B11+C11 =B12+C12 =B13+C13 14 154 16 Department 17 R&D 18 Litigation Applied =23800*35 =764150*40% Actual Overhead =797300 316200 Difference Under/Over =B17-C17 Overapplied =C18-B18 Underapplied