Timlin Associates is a recently formed law partnership. Timlin Associates operates at capacity and uses a cost-based approach to pricing (billing) each job. Currently it uses a single direct cost category (for professional labour-hours) and a single indirect cost pool (general support). Indirect costs are allocated to cases on the basis of professional labour-hours per case. The case files show the following. (Click the icon to view the data using the simple costing system.) Ellery Hanley, the managing partner of Timlin Associates, asks his assistant to collect details on those costs included in the $19,000 indirect cost pool that can be traced to each individual case. After further analysis, Timlin is able to reclassify $14,000 of the $19,000 as direct costs. (Click the icon to view the other direct costs data.) Hanley decides to calculate the costs of each case had Timlin used six direct cost pools and a single indirect cost pool. The single indirect cost pool would have $5,000 of costs and would be allocated to each case using the professional labour-hours base Required . Requirement 1. What is the revised indirect cost allocation rate per professional labour-hour for Timlin Associates when total indirect costs are $5,000? First determine the formula used to calculate the indirect cost rate. Then enter the amounts in the formula and calculate the rate per hour. (Round your answer to the nearest whole number.) Simple costing system Indirect cost rate per hour per professional labour-hour Requirement 2. Compute the costs of the Widnes and St. Helen's cases if Timlin Associates had used its refined costing system with multiple direct cost categories and one indirect cost pool. Begin by determining the formula used to allocate indirect costs. = Indirect costs allocated to job Other direct costs data Widnes Coal St. Helen's Glass Professional labour 103 hours 97 hours Professional labour costs at Timlin Associates are $85 an hour. Indirect costs are allocated to cases at $95 an hour. Total indirect costs in the most recent period were $19,000. Total costs of the jobs using the simple costing system are as follows: Widnes St. Helen's Now compute the total costs of each job. Widnes St. Helen's Coal Glass Coal Glass $ Direct professional labour Indirect costs allocated 8,755 $ 9,785 8,245 9,215 Other Direct Costs Widnes Coal St. Helen's Glass Research support labour $ 1,900 $ 2,200 Computer time 600 1,600 Travel and allowances 600 4,500 Telephones/faxes 300 1,300 Photocopying 300 700 $ 3,700 $ Total 10,300 $ 18,540 $ 17,460 Direct costs: Direct professional labour Research support labour Computer time Travel and allowances Telephones/faxes Photocopying Total direct costs Total Print Done Print Done Indirect costs to be allocated Total costs of job Requirement 3. Compare the costs of Widnes and St. Helen's jobs in requirement 2 with those calculated using the simple costing system. Comment on the results. It appears that using a simple costing system an accurate representation of costs. Although St. Helen's Glass uses fewer professional hours, it has a proportion of the reclassified costs. This leads us to believe that the job is y using the simple costing system
