Concept explainers
Compute the cost of the Person JA’s job using simplified costing system, ascertain the difference between it and
Explanation of Solution
Budgeted overhead allocation rate: The budgeted overhead allocation rate is the rate at which the overhead is allocated. This is calculated by dividing the total fixed and variable overheads cost by the base of the allocation.
Compute the cost of the Person JA’s job using simplified costing system.
Professional labor (6) | $2,555.00 |
Professional support (7) | 2,362.50 |
Total job cost | $4,917.50 |
Working Note (6):
Computed the cost of professional labor.
Working Note (7):
Computed the cost of professional support.
Compute the cost of the Person JA’s job using ABC costing system.
Partners’ time (2) | $1,250.00 |
Associates’ time | 1,500.00 |
Fringe benefits | 847.55 |
Paralegal support (4) | 625.00 |
Research support (5) | 1,137.50 |
Total job cost | $5,360.05 |
Working Note (1):
Computed the budgeted overhead rates.
Cost Pool | Budgeted Costs (a) | Budgeted Cost Drivers (b) | Budgeted Rate (c) = (a)/(b) |
Fringe benefits | $450,000 | $1,460,000 | 30.82% of professional labor dollars |
Paralegal support | $250,000 | 4,000 hours | $62.50 per partner labor hours |
Research support | $650,000 | 20,000 hours | $32.50 per professional labor hour |
Working Note (2):
Computed the cost of partners’ time.
Working Note (3):
Computed the cost of associates’ time.
Working Note (4):
Computed the cost of partners’ paralegal support cost.
Working Note (5):
Computed the cost of associates’ research support.
Calculate the difference between the total cost and job cost:
Job cost – ABC costing | $5,360.05 |
Job cost – Simplified costing | $4,917.50 |
Difference | $442.55 |
When compared to the 20% rate of partner hours relative to associate hours, built into the overhead rate and the average billing rate, 40% rate used by Person JA is a higher percentage. This difference is recognized by the ABC costing system, and when using ABC, the resulting job costs are $442.55 more.
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Chapter 9 Solutions
Principles of Cost Accounting
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