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-hours Direct lawyer-hours Materials and supplies Direct lawyer cost Departmental overhead cost Research and Documents Litigation 21,900 9,950 17,900 $ 21,800 $ 6,900 $ 467,650 $895,000 $744,600 $ 268,500 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 Documents Litigation 61 Research-hours Direct lawyer-hours Materials and supplies Direct lawyer cost 28 $ 88 $1,260 $ 49 52 $3,050 Required: 1. Compute the predetermined overhead rate used during the year in the Research and Documents Department. Compute the rate used in the Litigation Department. Predetermined Overhead Rate per hour Research & Documents department Litigation department

Answer 1

Predetermined rate = Estimated overhead costs/Estimated Driver
Research & Documents	34	per research hour
Litigation	30%	of Direct lawyer cost
Total overhead applied = Driver Consumed*Predetermined rate	2173
3
	R&D	Litigation	Total
Material and Supplies	88	49	137
Direct Attorney Cost	1260	3050	4310
Overhead	1258	915	2173
Total cost	2606	4014	6620
	Actual overhead	Applied	Difference
R&D	806000	843200	-37200	Overapplied
Litigation	250400	242295	8105	Underapplied

B D E А 1 2 Predetermined rate = Estimated overhead costs/Estimated Driver 3 Research & Documents 4 Litigation =744600/21900 per research hour = 268500/895000 of Direct lawyer cost 1=37*B3+3050*B4 6 Total overhead applied = Driver Consumed * Predetermined rate 7 8 3 9 10 Material and Supplies 11 Direct Attorney Cost 12 Overhead 13 Total cost 14 88 R&D Litigation 49 1260 3050 =B3*37 =C11*30% =SUM(B10:B12) 1=SUM(C10:C12) Total =B10+C10 =B11+C11 =B12+C12 =B13+C13 15 16 R&D | 17 Litigation Actual overhead JApplied 806000 =24800*34 250400 =807650*30% Difference =B16-C16 Overapplied =B17-C17 Underapplied