Management Accounting 1

Question 1

((1) AAC has just completed a review of its job order costing system This review included a detailed analysis of how past jobs used the company's resources and interviews with personnel about the factors that drive the level of indirect costs. The management concluded that a system with two direct-cost categories (professional partner labor and professional associate labor) and two indirect-cost categories (general support and secretarial support) would yield more accurate job costs. Budgeted information for 2019 related to the two direct-cost categories or pools is as follows: Professional Professional Partner Labor Associate Labor Number of professionals 5 25 Hours of billable time per professional 1,500 per year 1,500 per year Total compensation (average per professional) RM210,000 RM75,000 Budgeted information for 2019 relating to the two indirect-cost categories is as follows: General Support Secretarial Support Total costs RMZ,025,000 RM450,000 Coatallocation base Professional laborhours Partner labor-hours (i) Determine the 2019 budgeted direct-cost rates for professional partners and professional associates. Show all workings. (2 Marks) (ii) Determine the 2019 budgeted indirectcost rates for general support and secretarial support. Show all workings. (2 Marks) (iii) Given the following information, determine the budgeted costs for the Raya and Perkasa jobs. Show all workings: Raya Perkasa Professional partners 48 hours 32 hours Professional associates 72 hours 128 hours (10 Marks) Adil Arif & Co. (AAC) is a full service law firm in Kedah, which is specializing in labor relations and employee-related work. It employs 30 professionals (5 partners and 25 associates) who work directly with its clients. The average budgeted total compensation per professional for 2019 is RM97,500. Each professional is budgeted to have 1,500 billable hours to clients in 2019. All professionals work for clients to their maximum 1,500 billable hours available. All professional labor costs are included in a single direct-cost category and are traced to jobs on a per-hour basis. All costs of AAC other than professional labor costs are included in a single indirect-cost pool (legal support) and are allocated to jobs using professional labor-hours as the allocation base. The budgeted level of indirect costs in 2019 is RM2,475,000. REQUIRED: (a) Determine the 2019 budgeted direct-cost rate per hour of professional labor. Show all workings. (1 Mark) (b) Determine the 2019 budgeted indirect-cost rate per hour of professional labor. Show all workings. (2 Marks) (c) AAC is considering bidding on two (2) jobs: . Job Raya: Litigation work for Raya Construction San Bhd (RCSB), which requires 120 budgeted hours of professional labor. . Job Perkasa: Labor contract work for Perkasa Development Sdn Bhd (PDSB), which requires 160 budgeted hours of professional labor. Determine the estimated cost for each Job Raya and Job Perkasa. Show all workings. (4 Marks)(iv) Discuss on the results in requirement (d)(iii) and (e) above by showing the differences in the costs used by both Raya and Perkasa jobs. Give TWO {2) reasons for the differences. Show all workings. (6 Marks) (v) Would you recommend AAC to use the existing job order costing system prior to the review process or the one after the review process? Give TWO (2) reasons to support your recommendation