Company Background

Joseph Jones and Partners is a small firm that comprising of lawyers and accountants. It specialises in forensic accounting services. It is based in Sydney and has 2 offices in the metropolitan area and 2 in regional NSW. The firm was established 10 years ago and has 25 professionals (10 partners with 15 associates), who work directly with its clients.

Job-costing information

• The average budgeted total compensation per professional for 2021 is $167,000.
• The budget each professional anticipates is 1750 chargeable hours to clients in 2021.
• All of these costs are included in a single direct-cost category and are traced to jobs on a per-hour basis.
• All costs of Joseph Jones and Partners other than direct professional costs are included in a single indirect-cost pool styled professional support services and are allocated to jobs using professional-hours as the cost driver.
• The budgeted level of indirect costs in 2021 is $3,575,500.

Part 1: Analyse job costing system and calculate Professional Labour Rates (3 Marks)

Use the information provided above to complete the following:

Required:

1. Prepare an overview diagram of Joseph Jones and Partners job-costing system.
2. Calculate the 2021 budgeted direct-cost rate per hour of professional labour.
3. Calculate the 2021 budgeted indirect-cost rate per hour of professional labour.

Part 2 - Prepare Cost Estimate for bids on new jobs (3 marks)

Joseph Jones and Partners is considering bidding on the following two jobs:

• Legal services for TPL Australia Ltd, for which it budgets 350 professional-hours.
• Accounting advisory services for TrafficLight Ltd, for which it budgets 220 professional-hours.

Required:

Apply the costing system outlined in Part 1 to prepare a cost estimate for each of the TPL Australia and TrafficLight jobs.

Part 3 - Design a new costing system and prepare comparative cost estimates (5 Marks)

Joseph Jones and Partners has completed a review of its system. This review included a detailed analysis of how past jobs used the firm's resources, and interviews with personnel about what factors drive the level of indirect costs.

Management concluded that a system with two direct-cost categories (professional partner labour and professional associate labour) and two indirect-cost categories (Legal support and accounting support) would yield more-accurate job costs.

Budgeted information for 2021 related to the two direct-cost categories is:

	Relating to partners	Relating to associate Professionals
Number of professionals	10	15
Hours of chargeable time per professional	1,750 per year	1,750 per year
Total compensation (average per professional)	$350,000	$125,000

Budgeted information for 2021 relating to the two indirect-cost categories is:

	Legal Support	Accounting support
Total costs	$2,225,500	$1,350,000
Cost driver	Partner Professional hours	Totals professional hours

Required:

1. Design a new costing system according to the information above andprepare an overview diagram.
2. Apply the new costing system to calculate the budgeted costs for the TPL Australia Ltd and TrafficLight Ltd jobs respectively, based on the following:

	TPL Australia Ltd	TrafficLight Ltd
Professional partners	165 hours	125 hours
Professional associates	185 hours	95 hours

Part 4 - Report on Costing System Review (9 Marks)

Prepare a report to management which presents a comparison and analysis of the two costing systems as follows:

1. Provide an overview of each costing system, including diagrams and detailed commentary on the review undertaken by considering the factors that would impact on the use of the firms' resources as well as those that would drive the level of indirect costs. (2 Marks)
2. Referring to your calculations, compare the cost estimates for the two jobs under both costing systems by analysing and explaining the differences between the original costing system in Part 1 and the new costing system that you designed in Part 3. (2 Marks)
3. Using your analysis, discuss the advantages and disadvantages of using a pre-determined cost driver rate and identify any specific issues that this might cause. (2 Marks)
4. Provide a recommendation to management on the most appropriate job-costing system for Joseph Jones and Partners. Make sure to use your previous analysis and commentary to support your recommendations. (3 Marks)