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Homework answers / question archive / Wenjun Ma 2/10/15 PRODUCT COSTING FOR MANAGEMENT AND PRICING (2-5)         1

Wenjun Ma 2/10/15 PRODUCT COSTING FOR MANAGEMENT AND PRICING (2-5)         1

Management

Wenjun Ma

2/10/15

PRODUCT COSTING FOR MANAGEMENT AND PRICING (2-5)

 

 

 

 

1. Service Company Allocation of Overhead

 

Blue Computer Repair treats each repair order as a job. Overhead is allocated based on the cost of technician time. At the start of the year, annual technician wages were estimated to be $800,000, and company overhead was estimated to be $500,000.

 

Required

 

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a.  

Discuss why use of a predetermined overhead rate would be preferred to assigning actual overhead to repair jobs.

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b.  

Suppose a job required parts costing $200 and technician time costing $100. What would be the total cost of the job?

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2.  Cost of Jobs    

 

Red Company is a steel fabricator, and job 325 consists of producing 500 steel supports for Green Construction Company. Overhead is applied on the basis of direct labor hours, using a predetermined overhead rate of $25 per hour. Direct costs associated with Job 325 are: direct materials, $10,000; direct labor, 250 hours at $16 per hour.

 

Required

 

Calculate the cost of Job 325.

 

 

3.  Service Company Use of Predetermined Overhead Rate

 

Yellow and Purple Legal Services employs five full-time attorneys and nine paraprofessionals. Budgeted salaries are $100,000 for each attorney and $50,000 for each paraprofessional. Budgeted indirect costs (e.g., rent, secretarial support, copying, etc.) are $210,000. The company traces the cost of attorney and paraprofessional time to each client and uses the total to assign indirect costs.

 

Required

 

What amount of indirect costs would be assigned if services to a client required $25,000 of attorney cost and $20,000 of paraprofessional cost?

 

4.  Job Costing (Service)

Orange & Associates is an accounting firm that provides audit, tax, and accounting services to medium-size retail companies. It employs 50 professionals (10 partners and 40 associates) who work directly with clients. The average expected total compensation per professional for the year is $120,000. The services of Orange are in high demand, and each professional works for clients to their maximum of 1,600 billable hours. All professional salaries are traced to individual client service summaries. All costs other than professional salaries are included in a single indirect cost pool (professional support). The indirect costs are assigned to service summaries using professional hours as the allocation base. The expected amount of indirect costs for the year is $5,200,000.

 

Required

 

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a.  

Compute the budgeted indirect cost rate per hour of professional service.

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b.  

Orange & Associates is bidding on tax and audit services for a potential client that are expected to require 100 hours of professional service time. Calculate the estimated cost of the work using average professional wage rates and basing indirect costs on estimated service time.

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