Job costing, engineering consulting firm. Serra & Co., an engineering consulting firm, specializes in analyzing the structural

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Job costing, engineering consulting firm. Serra & Co., an engineering consulting firm, specializes in analyzing the structural causes of major building catastrophes. Its job costing system in 194 had a single direct cost category (professional labor) and a single indirect cost pool (general support). The allocation base for indirect costs is professional labor-dollars. Actual costs for 19_4 were:

Direct costs Professionallabor $10,000,000 Indirect costs General support 19,000,000 Total costs S29.000.000 The following costs were included in the general support indirect cost pool:

Fringe benefits to professional labor S1 .500.000 Secretarial costs 2,700.000 Telephone/fax machine 600,000 Computer time 1,800.000 Photocopying 400.000 S7,000,000 The firm's data-processing capabilities now make it feasible to trace these costs to individual cases or jobs. The managing partner is considering whether more costs than just professional labor should be traced to each job as a direct cost. In this way, the firm would be better able to justif\- billings to clients. In late 19_4, arrangements were made to expand the number of direct cost categories and to trace them to seven client engagements. Two of the case records showed the following:

Client Case 304 308 Professional labor $20,000 $20,000 Fringe benefits to professional labor 3.000 3.000 Secretarial costs 2,000 6.000 Telephone/fax machine 1,000 2,000 Computer time 2.000 4,000 Photocopying 1,000 2,000 Total direct costs $29,000 $37,000 Required 1. Present an overview Jia:ram of the 19_4 Serra job costing system. What was th. .ictual in direct cost rate per prof -sional labor-dollar?

2. Assume that the - m on of costs included in the 194 gener support indire. : cost p, .

were reclassified as dh -t costs. The result is a system with si .lirect cost categories. Compute the revised indire t cost rate as a percent? ge of:

i. professional labor-dollars (excluding fringe benefits) ii. total direct costs 3. Compute the total costs of jobs 304 and 308 using:

a. the 194 costing svstem with a single direct cost category and a single indirect cost pool (professional labor-dollars as the allocation base)

b. a costing system with six direct cost categories and a single indirect cost pool (profes- sional labor-dollars as the allocation base)

c. a costing system with six direct cost categories and a single indirect cost pool (total direct costs as the allocation base)
4. Assume that clients are billed at 120% of total job costs (that is, a markup on cost of 20%).
Compute the billings in requirement 3 for jobs 304 and 308 for the (a), (b), and

(c) costing sys- tems.
5. Which method of job costing in requirement 3 do you favor? Explain.

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Cost Accounting A Managerial Emphasis

ISBN: 9780131810662

8th Edition

Authors: Charles T. Horngren, George Foster, Srikant M. Datar

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