Cheney & Partners, a Quebec-based public accounting partnership, specializes in audit services. Its job-costing system has a single direct-cost category (professional labor) and a single indirect-cost pool (audit support, which contains all costs of the Audit Support Department). Audit support costs are allocated to individual jobs using actual professional labor-hours. Cheney & Partners employs 10 professionals to perform audit services.

Budgeted and actual amounts for 2014 are as follows:

Required
1. Compute the direct-cost rate and the indirect- cost rate per professional labor- hour for 2014 under
(a) Actual costing,
(b) Normal costing,
(c) The variation from normal costing that uses budgeted rates for direct costs.
2. Which job-costing system would you recommend Cheney & Partners use? Explain.
3. Cheney’s 2014 audit of Pierre & Co. was budgeted to take 170 hours of professional labor time. The actual professional labor time spent on the audit was 185 hours. Compute the cost of the Pierre & Co. audit using
(a) Actual costing,
(b) Normal costing,
(c) The variation from normal costing that uses budgeted rates for direct costs. Explain any differences in the jobcost.

Transcribed Image Text:

Cheney & Partners Budget for 2014 Professional labor compensation $960,000 Audit support department costs Professional labor-hours billed to cents 16,000 hours 720,000 Actual results for 2014 Audit support department costs Professional labor-hours billed to clients15500 hous Actual professional labor cost rateS 53lper hour $744,000