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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
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 2017 are as follows: (Click the icon to view the data.) Read the requirements. Requirement 1. Compute the direct-cost rate and the indirect-cost rate per professional labor-hour for 2017 under (a) actual costing, (b) normal costing, and (c) the variation from normal costing that uses budgeted rates for direct costs. Begin by identifying the formula to calculate the actual indirect-cost rate. Data table Cheney & Partners Actual indirect-cost rate Requirements Budget for 2017 Professional labor compensation Audit support department costs Professional labor-hours billed to clients $1,020,000 $680,000 17,000 hours Actual results for 2017 Audit support department costs $729,000 Professional labor-hours billed to clients 16,200 hours Actual professional labor cost rate $59 per hour 1. Compute the direct-cost rate and the indirect-cost rate per professional labor-hour for 2017 under (a) actual costing, (b) normal costing, and (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 2017 audit of Pierre & Co. was budgeted to take 110 hours of professional labor time. The actual professional labor time spent on the audit was 120 hours. Compute the cost of the Pierre & Co. audit using (a) actual costing, (b) normal costing, and (c) the variation from normal costing that uses budgeted rates for direct costs. Explain any differences in the job cost.
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