Which of the following statements is true of AICPA's Code of ...

[tichca]

Which of the following statements is true of AICPA's Code of Professional Conduct?
 
  A) Although AICPA membership is voluntary, membership mandates compliance with the Code of Professional Conduct.
  B) The purpose of the Code is to induce the accountants through guidance, rules, interpretations, and rulings to join the AICPA.
  C) The code helps members monitor their own behavior but it does not provide a framework for resolving disputes.
  D) The Code has two sections: principles and rationales.

Question 2

Service industry, job costing, two direct- and indirect-cost categories, law firm
 
  Kidman has just completed a review of its job-costing system. This review included a detailed analysis of how past jobs used the firm's resources and interviews with personnel about what factors drive the level of indirect costs. Management concluded that a system with two direct-cost categories (professional partner labor and professional associate labor) and two indirect-cost categories (general support and secretarial support) would yield more accurate job costs. Budgeted information for 2014 related to the two direct-cost categories is as follows:
 
   Professional Partner Labor Professional Associate Labor
  Number of professionals 5 25
  Hours of billable time per professional 1,500 per year 1,500 per year
  Total compensation (average per 210,000 75,000
  professional)
 
  Budgeted information for 2014 relating to the two indirect-cost categories is as follows:
 
   General Support Secretarial Support
  Total costs 2,025,000 450,000
  Cost-allocation base Professional labor-hours Partner labor-hours
 
  Required:
  1. Compute the 2014 budgeted direct-cost rates for (a) professional partners and (b) professional associates.
  2. Compute the 2014 budgeted indirect-cost rates for (a) general support and (b) secretarial support.
  3. Compute the budgeted costs for the Richardson and Punch jobs, given the following information:
 
   Richardson, Inc. Punch, Inc.
  Professional partners 48 hours 32 hours
  Professional associates 72 hours 128 hours
 
  4. Comment on the results in requirement 3. Why are the job costs different from those computed in Problem 4- 32?
  5. Would you recommend Kidman & Associates use the job-costing system in Problem 4- 32 or the job-costing system in this problem? Explain.

[duy1981999]

Answer to Question 1

A
Explanation: A) Although AICPA membership is voluntary, membership mandates compliance with the Code of Professional Conduct.

Answer to Question 2

Although not required, the following overview diagram is helpful to understand Kidman's job-costing system.

1. Professional
Partner Labor Professional
Associate Labor
Budgeted compensation per professional
Divided by budgeted hours of billable
time per professional
Budgeted direct-cost rate  210,000

1,500
140 per hour 75,000

1,500
50 per hour

Can also be calculated as = = = 140
Can also be calculated as = = = 50

2. General
Support Secretarial
Support
Budgeted total costs
Divided by budgeted quantity of allocation base
Budgeted indirect cost rate 2,025,000
 45,000 hours
45 per hour 450,000
 7,500 hours
60 per hour

3. Richardson Punch
Direct costs:
Professional partners,
140  48 hr.; 140  32 hr.
Professional associates,
50  72 hr.; 50  128 hr.
Direct costs
Indirect costs:
General support,
45  120 hr.; 45  160 hr.
Secretarial support,
60  48 hr.; 60  32 hr.
Indirect costs
Total costs

6,720

3,600
10,320

5,400

2,880
8,280
18,600

4,480

6,400
10,880

7,200

1,920
9,120
20,000

4. Richardson Punch
Single direct  Single indirect
(from Problem 4- 32)
Multiple direct  Multiple indirect
(from requirement 3 of Problem 4- 33)
Difference
14,400

18,600
 4,200
undercosted
19,200

20,000
 800
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). The refined-costing system in Problem 4- 33 increases the reported cost in Problem 4- 32 for the Richardson job by 29.17 (from 14,400 to 18,600) and the Punch job by a much smaller 4.17 (from 19,200 to 20,000).
5. I would recommend that Kidman & Associates use the job costing system in this problem with two direct- and two indirect- cost categories.
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.