Ali, Beng, Chandran and Associates is a small law firm that employs 10 partners and 12 support persons. The firm uses a job-order costing system to accumulate costs chargeable to each client, and it is organised 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. The pre-determined overhead rate in the Research and Document Department is based on research hours, and the rate in the Litigation department is based on direct attorney cost. The costs charged to each client are made up of three elements: legal forms and supplies used, direct attorney cost incurred, and an applied amount of overhead from each department in which work is performed in the case. At the beginning of the year, the firm’s management made the following estimates for the year. Department Research and Documents Litigation Research-hours 24,000 - Direct attorney-hours 9,000 18,000 Legal forms and supplies RM16,000 RM5,000 Direct attorney cost RM450,000 RM900,000 Departmental overhead cost RM840,000 RM360,000 Case 9-1-11 was initiated on 2 January and completed on May 15. During this period, the following costs and time were recorded on the case: Department Research and Documents Litigation Research-hours 26 - Direct attorney-hours 7 114 Legal forms and supplies RM80 RM40 Direct attorney cost RM350 RM5,700 Required: Calculate the predetermine overhead rate used during the year in the: Research and Document Department; Litigation Department. Using the rates you calculated in (1) above, calculate the total cost applied of Case 9-1-11. At the end of the year, the firm’s records revealed the following actual cost and operating data for all cases handled during the year: Department Research and Documents Litigation Research-hours 26,000 - Direct attorney-hours 8,000 15,000 Legal forms and supplies RM19,000 RM6,000 Direct attorney cost RM400,000 RM750,000 Departmental overhead cost RM870,000 RM315,000 Calculate the amount of under-absorbed or over absorbed overhead cost in each department for the year.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Ali, Beng, Chandran and Associates is a small law firm that employs 10 partners and 12 support persons. The firm uses a
The pre-determined overhead rate in the Research and Document Department is based on research hours, and the rate in the Litigation department is based on direct attorney cost.
The costs charged to each client are made up of three elements: legal forms and supplies used, direct attorney cost incurred, and an applied amount of overhead from each department in which work is performed in the case.
At the beginning of the year, the firm’s management made the following estimates for the year.
|
|
|
|
Department |
|
|
|
|
|
Research and |
|
|
|
|
|
Documents |
Litigation |
|
Research-hours |
|
24,000 |
- |
|
|
Direct attorney-hours |
9,000 |
18,000 |
||
|
Legal forms and supplies |
RM16,000 |
RM5,000 |
||
|
Direct attorney cost |
|
RM450,000 |
RM900,000 |
|
|
Departmental overhead cost |
RM840,000 |
RM360,000 |
Case 9-1-11 was initiated on 2 January and completed on May 15. During this period, the following costs and time were recorded on the case:
|
|
|
|
Department |
|
|
|
|
|
Research and |
|
|
|
|
|
Documents |
Litigation |
|
Research-hours |
|
26 |
- |
|
|
Direct attorney-hours |
7 |
114 |
||
|
Legal forms and supplies |
RM80 |
RM40 |
||
|
Direct attorney cost |
|
RM350 |
RM5,700 |
Required:
- Calculate the predetermine overhead rate used during the year in the:
- Research and Document Department;
- Litigation Department.
- Using the rates you calculated in (1) above, calculate the total cost applied of Case 9-1-11.
- At the end of the year, the firm’s records revealed the following actual cost and operating data for all cases handled during the year:
|
|
|
|
Department |
|
|
|
|
|
Research and |
|
|
|
|
|
Documents |
Litigation |
|
Research-hours |
|
26,000 |
- |
|
|
Direct attorney-hours |
8,000 |
15,000 |
||
|
Legal forms and supplies |
RM19,000 |
RM6,000 |
||
|
Direct attorney cost |
|
RM400,000 |
RM750,000 |
|
|
Departmental overhead cost |
RM870,000 |
RM315,000 |
Calculate the amount of under-absorbed or over absorbed overhead cost in each department for the year.
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