Tax Savings and Costing (The Case of Transfer Pricing) Please prepare a report answering the listed questions You may Excel to create spreadsheets and copy the answers to this document Hansen, Kotter, and Zales is a law firm that contains one service department (Research Document) and two production departments (Litigation and Consulting) The firm employs a job order costing system to accumulate costs chargeable to each client The firm uses actual costing to assign overhead General overhead costs can be allocated based on either direct attorney hours or the number of employees, depending on managers choice At the end of the year, the records revealed the actual general overhead costs are $720,000 At the end of the year, the records revealed the following costs and operating data for all cases handled during the year Research Document Litigation Consulting of Employees 10 8 6 Direct Attorney Hours( of hrs) 3,000 8,000 5,000 Direct Attorney Costs ($) $150,000 $400,000 $250,000 Direct Material Costs ($) $16,000 $15,500 $13,500 50 of Research Department's service is provided to litigation department and the other 50 to consulting department Part I Cost Allocation (2 point) Compute the overhead allocation rates for general overhead based on different cost drivers What are the overhead costs assigned to each department, using different cost drivers (3 point) Compare the total costs of each production department after departmental cost allocation, using attorney hours and the number of employees as cost driver, respectively Does the choice of cost driver affect the total costs of each production department Assume that the company uses attorney hours to allocate general overhead costs For litigation department, the costs charged to each case are made up of four elements Direct attorney costs (charged at $50 per hour) Direct materials and supplies used General overheads are applied by direct attorney hours Costs allocated from the service department is assigned to cases by direct attorney hours incurred within the department The information on one of its cases during this period is given as follows Case 618 Direct attorney hours 150 Direct Materials and supplies $5000 c (3 point) What are the total costs accumulated for Case 618 The company charged the client $30,000 for the service, what is the profit the company earned d (2 point) Suppose the firms annual revenue is 2 million dollars The corporate tax rate is 35 How much taxes shall the company pay Does the choice of cost driver affect the total taxes due

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Tax Savings and Costing (The Case of Transfer Pricing) Please prepare a report answering the listed questions. You may Excel to create spreadsheets and copy

Tax Savings and Costing (The Case of Transfer Pricing)

Please prepare a report answering the listed questions. You may Excel to create spreadsheets and copy the answers to this document.

Hansen, Kotter, and Zales is a law firm that contains one service department (Research & Document) and two production departments (Litigation and Consulting). The firm employs a job-order costing system to accumulate costs chargeable to each client. The firm uses actual costing to assign overhead. General overhead costs can be allocated based on either direct attorney hours or the number of employees, depending on managers choice. At the end of the year, the records revealed the actual general overhead costs are $720,000. At the end of the year, the records revealed the following costs and operating data for all cases handled during the year:

	Research & Document	Litigation	Consulting
# of Employees	10	8	6
Direct Attorney Hours(# of hrs)	3,000	8,000	5,000
Direct Attorney Costs ($)	$150,000	$400,000	$250,000
Direct Material Costs ($)	$16,000	$15,500	$13,500

*** 50% of Research & Department's service is provided to litigation department and the other 50% to consulting department.

Part I Cost Allocation

(2 point) Compute the overhead allocation rates for general overhead based on different cost drivers. What are the overhead costs assigned to each department, using different cost drivers?

(3 point) Compare the total costs of each production department after departmental cost allocation, using attorney hours and the number of employees as cost driver, respectively. Does the choice of cost driver affect the total costs of each production department?

Assume that the company uses attorney hours to allocate general overhead costs. For litigation department, the costs charged to each case are made up of four elements:

Direct attorney costs (charged at $50 per hour)
Direct materials and supplies used
General overheads are applied by direct attorney hours
Costs allocated from the service department is assigned to cases by direct attorney hours incurred within the department

The information on one of its cases during this period is given as follows:

Case 618

Direct attorney-hours 150

Direct Materials and supplies $5000

c. (3 point) What are the total costs accumulated for Case 618? The company charged the client $30,000 for the service, what is the profit the company earned?

d. (2 point) Suppose the firms annual revenue is 2 million dollars. The corporate tax rate is 35%. How much taxes shall the company pay? Does the choice of cost driver affect the total taxes due?