Service industry, job costing, two direct- and two indirect-cost categories, law firm…

The economic evaluation process
July 1, 2020
Summarize your reflection on the self-assessment activities. Comment on skills and competencies you would like to further develop based on your results
July 1, 2020

Service industry, job costing, two direct- and two indirect-cost categories, law firm…

Service industry, job costing, two direct- and two indirect-cost categories, law firm (continuation of 4-37). Kidman has just completed a review of its job-costing system. This review included a detailed analysis of how past jobs used the firm’s resources and interviews with personnel about what factors drive the level of indirect costs. Management concluded that a system with two direct-cost categories (professional partner labor and professional associate labor) and two indirect-cost categories (general support and secretarial support) would yield more accurate job costs. Budgeted information for 2017 related to the two direct-cost categories is as follows:

1. Compute the 2017 budgeted direct-cost rates for (a) professional partners and (b) professional associates.

2. Compute the 2017 budgeted indirect-cost rates for (a) general support and (b) secretarial support.

3. Compute the budgeted costs for the Richardson and Punch jobs, given the following information:

4. Comment on the results in requirement 3. Why are the job costs different from those computed in Problem 37

Service industry, job costing, law firm. 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.

5. Would you recommend Kidman & Associates use the job-costing system in Problem 4-37 or the jobcosting system in this problem? Explain.

 

 

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