Question

Kidman & 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 Previously the firm accounted for all professional labor cost in a single direct cost account and all other costs in a single indirect-cost pool Click the icon to view the cost information and res under the previous method) Kidman has just completed a review of its job-costing system (Click the icon to view the job-costing review information) Budgeted Information for 2017 related to the two direct-cost categories is as follows: m (Click the icon to view the budgeted information) Read the requirements Requirement 1. Compute the 2017 budgeted direct.costrutes for a professional partners and professional associates Begin by selecting the formula then enter the amounts to compute both rates Abreviations used Asse ssociate) eted direct Partner

Answer 1

Kidman & Associates Requirement 1 Budgeted compensation per professional Budgeted hours of billable time per professional Budgeted direct-cost rate Professional Professional Partner Labor Associate Labor 210000 75000 1500 1500 140 per hour per hour 50 Requirement 2 General Support 2025000 45000 Budgeted total costs Budgeted quantity of allocation base (hours) Budgeted indirect cost rate Secretarial Support 450000 7500 60 per hour per hour Requirement 3 Richardson Punch 6720 3600 10320 4480 6400 10880 Direct costs: Professional partners, $140 x 48 hr.; $140 x 32 hr. Professional associates, $50 x 72 hr.; $50 x 128 hr. Direct costs Indirect costs: General support, $45 x 120 hr.; $45 x 160 hr. Secretarial support, $60 x 48 hr.; $60 x 32 hr. Indirect costs Total costs 5400 2880 8280 18600 7200 1920 9120 20000

Requirement 4 Richardson Punch Single direct - Single indirect 14400 19200 Multiple direct - Multiple indirect 18600 20000 Difference 4200 800 undercosted undercosted The Richardson and Punch jobs differ in their use of resources. The Richardson job has a mix of 40% partners and 60% associates, while Punch has a mix of 20% partners and 80% 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 Punch job, on the other hand, has a mix of partner and associate-related hours (1:4) that is only slightly higher than the mix of partner and associate hours for the firm as a whole (1:5). Requirement 5 Kidman & Associates should use multiple categories of direct costs (partner labor and professional labor) because the costs of the different categories of labor are very different and different jobs use these direct labor resources in different proportions. The system with only one direct cost would be accurate only if all jobs used partner-labor and professional-labor in the same proportion, which is clearly not the case. Using a single direct-cost category would undercost (overcost) jobs that have a high (low) proportion of partner-labor. Kidman should use multiple indirect cost pools because partners use additional secretarial support resources that professionals do not use. With a single indirect cost pool as in problem 4- 32, jobs that use proportionately greater (fewer) partner labor-hours are not assigned the extra (lower) costs of supporting these partners and are undercosted (overcosted). The job costing system in this problem more accurately represents the costs incurred on different jobs and therefore helps managers make better decisions.