Problems 5-31. JOB COSTING WITH SINGLE DIRECT-COST CATEGORY, SINGLE INDIRECT-COST POOL LAW FIRM. Timlin Associates is a recently formed law partnership. Rachel Hamilton, the managing partner of Timlin Associates, has just finished a tense phone call with Phil Lopez, president of Lopez Enterprises Phil strongly complained about the price Timlin charged for some legal work done for his company Hamilton also received a phone call from Timlin's only other client Clinical Inc., which was very pleased with both the quality of the work and the price charged on its most recent job. Timlin Associates operates at capacity and uses a cost-based approach to pricing (billing) each job. Currently it uses a simple costing system with a single direct cost category (protessional labor hours) and a single indirect-cost pool (general support). Indirect costs are allocated to cases on the basis of professional labor hours per case. The job files show the following Lopez Enterprise Clinical Profesional Labor 2.500 hours 50 hours Professional labor cost at Timiin Associates are 5250 an hour Indirect costs are allocated to be at $125 an hour. Total indirect costs in the most recent period wore 5625.000 End of Chapter Activity-Based Costing and Activity-Based Management Professional labor 2.500 hours 2.500 hours Professional labor costs at Timlin Associates are $250 an hour. Indirect costs are allocated to cases at $125 an hour. Total indirect costs in the most recent period were $625,000. Required 1. Why is it important for Timlin Associates to understand the costs associated with individual jobs? 2. Compute the costs of the Lopez Enterprises and Clinical Inc. jobs using Timlin's simple costing system 5-32. JOB COSTING WITH MULTIPLE DIRECT-COST CATEGORIES, SINGLE INDIRECT-COST POOL, LAW FIRM (CONTINUATION OF 5-31). Rachel Hamilton, the managing partner of Timlin Associates, asks her assistant to collect details on those costs included in the $625,000 indirect-cost pool that can be traced to each individual job. After analysis, Timlin is able to reclassify $450,000 of the $625,000 as direct costs: Other Direct Costs Research supportlobo Computer time Travel and allowances Telephone/faxes Photocopying Total Lepez Enterprises S41.000 4,000 14.000 4500 6.500 37,000 Clinical $232.500 31.000 81.000 20.000 14.500 380.000 Other Direct Costs Research support labor Computer time Travel and allowances Telephones/faxes Photocopying Total Lopez Enterprises $41,000 4,000 14,000 Clinical Inc. $232,500 31,000 81,000 21,000 14,500 $380,000 4,500 6,500 $70,000 Hamilton decides to calculate the costs of each job as if Timlin had used six direct-cost pools and a single indirect-cost pool. The single indirect- cost pool would have $175,000 of costs and would be allocated to each case using the professional labor-hours base. Required 1. Calculate the revised indirect-cost allocation rate per professional labor-hour for Timlin Associates when total indirect costs are $175,000 2. Compute the costs of the Lopez Enterprises and Clinical Inc. jobs if Timlin Associates had used its refined costing system with multiple direct-cost categories and one indirect-cost pool. 3. Compare the costs of Lopez Enterprises and Clinical Inc. jobs in requirement 2 with those calculated using the simple costing system. Comment on the results
