Job costing with multiple direct-cost categories, single indirect-cost pool, law firm

(continuation of 5-30). Hanley speaks to the other partners about the pricing of the two cases. Several believe that the relative prices charged seem out of line with their intuition.

One partner observes that a useful approach to obtaining more accurate job costs is to increase direct-cost tracing.

Hanley asks his assistant to collect details on those costs included in the $25,200 indirect-cost pool that can be traced to each individual case. After further analysis, Wigan is able to reclassify $16,800 of the $25,200 as direct costs:

Other Direct Costs Widnes Coal St. Helen’s <

Research support labour $1,920 $ 4,080 Computer time 600 1,560 Travel and allowances 720 5,280 Telephone/faxes 240 1,200 Photocopying 300 900 Total $3,780 $13,020 Hanley decides to calculate the costs of each case had Wigan used six direct-cost pools and a single indirect-cost pool. The single indirect-cost pool would have $8,400 of costs and would be allocated to each case using the professional labour-hours base.

Required 1. Present an overview diagram of the refined job-costing system with its multiple direct-cost categories.

2. What is the revised indirect cost-allocation rate per professional labour-hour for Wigan Partners when total indirect costs are $7,000?

3. Compute the costs of the Widnes and fit. Helen’s cases if Wigan Partners had used its refined costing system with multiple direct-cost categories and one indirect-cost pool.

4. Compare the costs of the Widnes and fit. Helen’s cases in requirement 3 with those in requirement 3 of Problem 5-30. Comment on the results.