Question

Kidman & Associates is a law firm specializing in labor relations and employee-related work. It employs 30 professionals (5 partners and 25 associates) who work directly with its clients. The average budgeted total compensation per professional for 2017 is $97,500. Each professional is budgeted to have 1,500 billable hours to clients in 2017. All professionals work for clients to their maximum 1,500 billable hours available. All professional labor costs are included in a single direct-cost category and are traced to jobs on a per-hour basis. All costs of Kidman & Associates other than professional labor costs are included in a single indirect-cost pool (legal support) and are allocated to jobs using professional labor-hours as the allocation base. The budgeted level of indirect costs in 2017 is $2,475,000.

1.Prepare an overview diagram of Kidman’s job-costing system.

2.Compute the 2017 budgeted direct-cost rate per hour of professional labor.

3.Compute the 2017 budgeted indirect-cost rate per hour of professional labor.

4.Kidman & Associates is considering bidding on two jobs:

a.Litigation work for Richardson, Inc., which requires 120 budgeted hours of professional labor

b.Labor contract work for Punch, Inc., which requires 160 budgeted hours of professional labor. Prepare a cost estimate for each job.

Answer 1

Answer

1)

Overview diagram of Kidman’s job-costing system is as follows

INDIRECT COST POOL Legal Support ALLOCATION } Professional Labor-Hours BASE COST OBJECT: JOB FOR CUENT Indirect costs Direct Costs DIRECT COST } Professional Labor

2)

Budgeted direct-cost rate per hour of professional labor.has calculated with the help of following formula

Budgeted professional labor-hour direct cost rate =

= Budget direct labor compensation per professional / Budgeted direct labor-hours per professional

= $ 97,500 / 1500 hours

= $65 per professional labor-hour

The budgeted professional labor-hour direct-cost rate can also be calculated by dividing total budgeted professional labor costs of $2,925,000 ($97,500 per professional ´ 30 professionals) by total budgeted professional labor-hours of 45,000 (1,500 hours per professional ´ 30 professionals), $2,925,000 ¸ 45,000 = $65 per professional labor-hour.

3)

Budgeted indirect-cost rate per hour of professional labor.has calculated with the help of following formula

Budgeted indirect cost rate Budgeted total costs in indirect cost pool Budgeted total professional labor-hours $2.475,000 1,500 hours per professional x 30 professionals $2,475,000 45,000 hours = $55 per professional labor-hour

4)

	Richardson	Punch
Direct costs: Professional labor, $65 × 120; $65 ×160	$7,800	$10,400
Indirect costs: Legal support, $55 × 120; $55 ×160	$6,600	$8,800
	$14,400	$19,200