Problems 5-31 Job costing with single direct-cost category, single indirect-cost pool, law firm. Wharton Associates is a recently formed law partnership Denise Peyton, the managing partner of Wharton Associates, has just finished a tense phone call with Gus Steger, president of Steger Enterprises. Gus strongly complained about the price Wharton charged for some legal work done for his company. Peyton also received a phone call from its only other client, Bluestone, Inc., which was very pleased with both the quality of the work and the price charged on its most recent job. Wharton Associates operates at capacity and uses a cost-based approach to pricing (billing) each job. Currently it uses a simple costing system with a single direct-cost category (professional labor-hours) and a single indirect-cost pool (general support). Indirect costs are allocated to cases on the basis of professional labor-hours per case. The job files show the following: Steger Enterprises Bluestone Inc. Professional labor 3,000 hours 2,000 hours Professional labor costs at Bradley Associates are $160 an hour. Indirect costs are allocated to cases at $100 an hour. Total indirect costs in the most recent period were $500,000. 1. Why is it important for Bradley Associates to understand the costs associated with individual jobs? Required 2. Compute the costs of the Steger Enterprises and Bluestone Inc. jobs using Bradley’s simple costing system.
Problems 5-31 Job costing with single direct-cost category, single indirect-cost pool, law firm. Wharton Associates is a recently formed law partnership Denise Peyton, the managing partner of Wharton Associates, has just finished a tense phone call with Gus Steger, president of Steger Enterprises. Gus strongly complained about the price Wharton charged for some legal work done for his company. Peyton also received a phone call from its only other client, Bluestone, Inc., which was very pleased with both the quality of the work and the price charged on its most recent job. Wharton Associates operates at capacity and uses a cost-based approach to pricing (billing) each job. Currently it uses a simple costing system with a single direct-cost category (professional labor-hours) and a single indirect-cost pool (general support). Indirect costs are allocated to cases on the basis of professional labor-hours per case. The job files show the following: Steger Enterprises Bluestone Inc. Professional labor 3,000 hours 2,000 hours Professional labor costs at Bradley Associates are $160 an hour. Indirect costs are allocated to cases at $100 an hour. Total indirect costs in the most recent period were $500,000. 1. Why is it important for Bradley Associates to understand the costs associated with individual jobs? Required 2. Compute the costs of the Steger Enterprises and Bluestone Inc. jobs using Bradley’s simple costing system.
Solution Summary: The author explains how job costing is used to find out the cost of an individual job or batch of jobs in a manufacturing firm.
5-31 Job costing with single direct-cost category, single indirect-cost pool, law firm. Wharton Associates is a recently formed law partnership Denise Peyton, the managing partner of Wharton Associates, has just finished a tense phone call with Gus Steger, president of Steger Enterprises. Gus strongly complained about the price Wharton charged for some legal work done for his company.
Peyton also received a phone call from its only other client, Bluestone, Inc., which was very pleased with both the quality of the work and the price charged on its most recent job.
Wharton Associates operates at capacity and uses a cost-based approach to pricing (billing) each job. Currently it uses a simple costing system with a single direct-cost category (professional labor-hours) and a single indirect-cost pool (general support). Indirect costs are allocated to cases on the basis of professional labor-hours per case. The job files show the following:
Steger Enterprises
Bluestone Inc.
Professional labor
3,000 hours
2,000 hours
Professional labor costs at Bradley Associates are $160 an hour. Indirect costs are allocated to cases at $100 an hour. Total indirect costs in the most recent period were $500,000.
1. Why is it important for Bradley Associates to understand the costs associated with individual jobs?
Required
2. Compute the costs of the Steger Enterprises and Bluestone Inc. jobs using Bradley’s simple costing system.
Definition Definition Accounting technique that tracks the costs of materials, labor, and overhead for a particular job. The main purpose of job costing is to determine the profit or loss for each job. Repetitive work or poorly allocated employees can be addressed for the upcoming project through job costing.
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