Question : PROBLEM 1.Joleen Harmon, CPA, has two clients and uses a job : 1416278

 

PROBLEM

1.Joleen Harmon, CPA, has two clients and uses a job order cost system.  Client A requires 20 hours of partner time and 100 hours of staff time.  Client B will use 12 hours of partner time and 75 hours of staff time.  Partners are paid $85 an hour and bill support time at 50% of their hourly rate.  Staff are paid $25 an hour and bill support time at $20 per billable hour.  What is the total charge to each of these clients if profit is added at 20% over cost?

 

2.Walters and Witt, a law firm that uses job order costing, is analyzing the profitability of its cases.  During the year, the firm represented the Umberg Company in numerous routine legal issues, for which it charged a monthly retainer fee of $2,500.  Budget information for the firm follows:

 

Direct labor:

Partners$  500,000

Associates900,000

Paralegals600,000

Total$2,000,000

Overhead:

Secretarial support$   900,000

Depreciation of office equipment300,000

Fringe benefits400,000

Lease expense200,000

Utilities300,000

Communication expenses250,000

Office supplies150,000

Total$2,500,000

Partner, associates and paralegal hourly salary rates are $100, $60 and $20, respectively.

 

Budgeted and actual time for the Umberg case follows:

     BudgetActual

Partners20 hours23 hours

Associates40 hours42 hours

Paralegals80 hours72 hours

 

In addition, the firm incurred $875 in travel costs related to Umberg, but the firm had budgeted for $1,000 of direct costs.

 

(a)Assuming that Walters and Witt allocates overhead to jobs using direct labor cost as the cost driver, compute the predetermined overhead rate.

 

(b)Compute the cost of the Umberg work this year.

 

(c)Prepare a cost performance report for the Umberg work this year.

 

(d)Compute the profit that Walters and Witt had on the Umberg work this year.