Author Question: Job costing with multiple direct-cost categories, single indirect-cost pool, law firm Harrington ... (Read 143 times)

kaid0807 · **on:** Jul 6, 2018

Job costing with multiple direct-cost categories, single indirect-cost pool, law firm

Harrington asks his assistant to collect details on those costs included in the 25,000 indirect-cost pool that can be traced to each individual job. After analysis, Bradley is able to reclassify 15,000 of the 25,000 as direct costs:

Harrington decides to calculate the costs of each job as if Bradley had used six direct cost-pools and a single indirect-cost pool. The single indirect-cost pool would have 10,000 of costs and would be allocated to each case using the professional labor-hours base.

Required:
1. Calculate the revised indirect-cost allocation rate per professional labor-hour for Bradley Associates when total indirect costs are 10,000.
2. Compute the costs of the Campa and St. Edith's jobs if Bradley Associates had used its refined costing system with multiple direct-cost categories and one indirect-cost pool.
3. Compare the costs of Campa and St. Edith's jobs in requirement 2 with those in requirement 2 of Problem 5- 30. Comment on the results.

Question 2

Ott Company sold services for cash. What are the effects on the fundamental accounting equation?
a. Assets increase; liabilities, no effect; owner's equity increases.
b. Assets decrease; liabilities, no effect; owner's equity increases.
c. Assets increase; liabilities, no effect; owner's equity decreases.
d. Assets increase; liabilities, increase; owner's equity, no effect.

kaillie · **Reply #1 on:** Jul 6, 2018

Answer to Question 1

1. Indirect costs = 10,000
Total professional labor-hours = 250 hours (150 hours on Campa Coal + 100 hours on St. Edith's Glass)
Indirect cost allocated per professional labor-hour (revised) = 10,000 250 = 40 per hour

2. Campa St. Edith's
Coal Glass Total
Direct costs:
Direct professional labor,
80 150; 80 100 12,000 8,000 20,000
Research support labor 1,800 3,850 5,650
Computer time 400 1,600 2,000
Travel and allowances 700 4,200 4,900
Telephones/faxes 250 1,200 1,450
Photocopying 300 700 1,000
Total direct costs 15,450 19,550 35,000
Indirect costs allocated,
40 150; 40 100 6,000 4,000 10,000
Total costs to be billed 21,450 23,550 45,000

3.
Campa St. Edith's
Coal Glass Total

Problem 5- 30 27,000 18,000 45,000
Problem 5- 31 21,450 23,550 45,000

The Problem 5- 31 approach directly traces 15,000 of general support costs to the individual jobs. In Problem 5- 30, these costs are allocated on the basis of direct professional labor-hours. The averaging assumption implicit in the Problem 5- 30 approach appears incorrectfor example, the St. Edith's Glass job has travel costs six times higher than the Campa Coal case despite having lower direct professional labor-hours.

Answer to Question 2

A