Chapter 9, Problem 8P

1.

To determine

Prepare job cost sheets for M Products and R Markets.

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.

Prepare job cost sheets for M Products and R Markets.

	M Products	R Markets
Professional labor cost:
50 hours×$60 (1)	$3,000
20 hours×$60 (1)		$1,200
Professional support:
50 hours×$40 (2)	2,000
20 hours×$40 (2)		800
Total	$5,000	$2,000

Working Note (1):

Compute the cost of professional labor per hour.

$\begin{array}{c}\text{Cost per hour=}\left[\frac{\left(\begin{array}{l}\text{Partner salary}\times \\ \text{Number of partners}\end{array}\right)+\left(\begin{array}{l}\text{Associate salary}\times \\ \text{Number of associates}\end{array}\right)}{\left(\begin{array}{l}\text{Number of hours}\times \\ \text{Number of partners and associates}\end{array}\right)}\right]\\ \text{=}\left[\frac{\left(\$150,000\times 2\right)\text{+}\left(\text{\$60,000}\times \text{4}\right)}{\left(1,500\text{hours}\times \text{6}\right)}\right]\\ \text{=\$60}\end{array}$

Working Note (2):

Computed the cost of professional support per hour.

$\begin{array}{c}\left(\begin{array}{l}\text{Cost of professional }\\ \text{support per hour}\end{array}\right)\text{=}\frac{\text{Cost of professional support}}{\text{Number of hours}}\\ \text{=}\frac{\$360,000}{\left\{\begin{array}{l}\left(50\text{ hours}\times \text{2}\text{partners}\right)+\\ \left(20\text{hours}\times \text{4 associates}\right)\end{array}\right\}}\\ \text{=}\frac{\$360,000}{9,000\text{hours}}\\ =\$40\end{array}$

2.

To determine

Prepare job cost sheets for the two clients.

Explanation of Solution

Prepare job cost sheets for the two clients.

	M Products	R Markets
Professional labor cost:
30 hours×$100 (3)	$3,000
5 hours×$100 (3)		$500
Associate labor cost:
20 hours×$40 (4)	800
15 hours×$40 (4)		600
Design support:
$3,800×.22 (5)	836
$1,100×.22 (5)		242
Staff support:
50 hours×$26.67 (6)	1,334
20 hours×$26.67 (6)		533
Total	$5,970	$1,875

Working Note (3):

Compute the cost of partner labor per hour.

$\begin{array}{c}\text{Cost per hour=}\left[\frac{\text{Partners salary}}{\text{Number of hours}}\right]\\ \text{=}\left[\frac{\$150,000}{1,500\text{hours}}\right]\\ \text{=\$100}\end{array}$

Working Note (4):

Computed the cost of associate labor per hour.

$\begin{array}{c}\text{Cost per hour=}\left[\frac{\text{Associates salary}}{\text{Number of hours}}\right]\\ \text{=}\left[\frac{\$60,000}{1,500\text{hours}}\right]\\ \text{=\$40}\end{array}$

Working Note (5):

Computed the cost of design support per partner and associate.

$\begin{array}{c}\text{Cost per partner associate=}\left[\frac{\text{Cost of design support}}{\left(\begin{array}{l}\text{Partner salary}\times \\ \text{Number of partners}\end{array}\right)+\left(\begin{array}{l}\text{Associate salary}\times \\ \text{Number of associates}\end{array}\right)}\right]\\ \text{=}\left[\frac{\$120,000}{\left(\$150,000\times 2\right)\text{+}\left(\text{\$60,000}\times \text{4}\right)}\right]\\ \text{=\$}\text{.22}\end{array}$

Working Note (6):

Computed the cost of staff support per partner and associate.

$\begin{array}{c}\text{Cost per partner associate=}\left[\frac{\text{Cost of staff support}}{\left(\begin{array}{l}\text{Number of partners and associates}\\ \times \text{Number of hours}\end{array}\right)}\right]\\ \text{=}\left[\frac{\$240,000}{\left(6\times 1,500\right)}\right]\\ \text{=\$26}\text{.67}\end{array}$