CHAPTER 4
JOB COSTIG
4-21
(20−25 min.) Job costing, consulting firm.
1.
Budgeted indirect-cost rate = $13,000,000 ÷ $5,000,000 = 260% of professional labor costs
2.
INDIRECT
COST
POOL
}
Consulting
Consulting
Support
Support
COST
ALLOCATION
BASE
}
Professional
Professional
Labor
LaborCosts
Costs
COST OBJECT:
JOB FOR
CONSULTING
CLIENT
}
DIRECT
COSTS
}
Indirect Costs
Direct Costs
Professional
Labor
At the budgeted revenues of $20,000,000, Taylor’s operating income of $2,000,000
equals 10% of revenues.
Markup rate = $20,000,000 ÷ $5,000,000 = 400% of direct professional labor costs
4-1
3.
Budgeted costs
Direct costs:
Director, $200 × 3
$ 600
Partner, $100 × 16
1,600
Associate, $50 × 40
2,000
Assistant, $30 × 160
4,800
Indirect costs:
Consulting support, 260% × $9,000
Total costs
$ 9,000
23,400
$32,400
As calculated in requirement 2, the bid price to earn a 10% income-to-revenue margin is 400%
of direct professional costs. Therefore, Taylor should bid 4 × $9,000 = $36,000 for the Red
Rooster job.
Bid price to earn target operating income-to-revenue margin of 10% can also be
calculated as follows:
or,
Let R = revenue to earn target income
R – 0.10R = $32,400
0.90R = $32,400
R = $32,400 ÷ 0.90 = $36,000
Direct costs
$ 9,000
Indirect costs
23,400
Profit (0.40 × 9,000)
3,600
Bid price
$36,000
4-2
4-29 (20–30 min.)Research project costs, variation in overhead rates.
1.
Cost Category
($000s)
Direct costs
Professors’ salaries
Graduate students’ stipends
Total direct labor costs
Overhead costs
Overhead rate (overhead
costs ÷ total direct labor costs)
Departments
atural
Sciences Engineering Business
$5,000
$5,500
$2,100
1,600
1,500
2,000
1,500
2,500
500
$3,100
$4,000
$2,500
8,030
9,600
5,250
Liberal
Arts
$1,200
1,000
700
$1,700
850
50%
259%
240%
Total
$13,800
6,100
5,200
$11,300
23,730
210%
210%
2.
Cost Category
($000s)
Direct costs
Total direct labor costs
Budgeted overhead (210% of
total direct labor costs)
Budgeted costs of research
projects submitted to funding
agencies
Departments
Liberal atural
Arts
Sciences Engineering Business
$1,200
$5,000
$5,500
$2,100
1,700
3,100
4,000
2,500
Total
$13,800
11,300
3,570
6,510
8,400
5,250
23,730
$6,470
$14,610
$17,900
$9,850
$48,830
3.
Cost Category
($000s)
Direct costs
Total direct labor costs
Overhead costs
Budgeted costs of research
projects
Departments
Liberal atural
Arts
Sciences Engineering
$1,200 $ 5,000
$ 5,500
1,700
3,100
4,000
850
8,030
9,600
$3,750
$16,130
$19,100
Business
$2,100
2,500
5,250
Total
$13,800
11,300
23,730
$9,850
$48,830
4.
(All dollar figures in 000s). The liberal arts professors are required to submit proposals
for research grants that incorporate overheads that are 210% of the direct labor cost. From
requirements 2 and 3, they are, on average, bidding about 73% ($6,470 ÷ $3,750 = 1.73), more
than their budgeted costs. In effect, they are sharing some of the overhead burden from natural
sciences and engineering, but as a result, their proposals are uncompetitive in the researchfunding marketplace. The danger is that if the liberal arts professors do not get the funding they
need because their bids are uncompetitive, then they may not be able to support their own
graduate students and their use of university resources.
4-3
5.
(All dollar figures in 000s). If the liberal arts professors charge their own overhead rate of
50%, then, they will charge $850 in overhead costs. The remaining overhead costs will be
$22,880 ($23,730 – $850). The remaining total direct labor costs will be $9,600 ($3,100 +
$4,000 + $2,500). This will result in an average overhead rate of about 238% ($22,880 ÷ $9,600)
for the other three departments.
6.
If liberal arts is allowed to charge its own rate of 50%, it is unlikely that the business
department would be happy to share the overhead burdens arising from the research in the
natural sciences and in engineering. It would want to apply its own overhead rate of 210%. Then,
engineering will want to apply its own relatively lower rate of 240% leaving the natural sciences
having to apply their rate of 259%. This may make engineering and natural sciences, in
particular, uncompetitive in the research-funding marketplace, and may, over time, weaken the
university’s prestige.
4-4
4-31
(15−20 min.) Service industry, job costing, law firm.
1.
INDIRECT
COST
POOL
}
Legal
Support
COST
ALLOCATION
BASE
}
Professional
Labor-Hours
COST OBJECT:
JOB FOR
CLIENT
}
DIRECT
COST
Indirect Costs
Direct Costs
}
Professional
Labor
2.
Budgeted professional = Budgeted direct labor compensation per professional
labor-hour direct cost rate
Budgeted direct labor-hours per professional
$104,000
=
1,600 hours
= $65 per professional labor-hour
Note that the budgeted professional labor-hour direct-cost rate can also be calculated by
dividing total budgeted professional labor costs of $2,600,000 ($104,000 per professional × 25
professionals) by total budgeted professional labor-hours of 40,000 (1,600 hours per professional
× 25 professionals), $2,600,000 ÷ 40,000 = $65 per professional labor-hour.
3.
Budgeted total costs in indirect cost pool
Budgeted total professional labor-hours
$2,200,000
=
1,600 hours × 25
$2,200,000
=
40,000 hours
= $55 per professional labor-hour
Budgeted indirect =
cost rate
4.
Direct costs:
Professional labor, $65 × 100; $65 × 150
Indirect costs:
Legal support, $55 × 100; $55 × 150
4-5
Richardson
Punch
$ 6,500
$ 9,750
5,500
$12,000
8,250
$18,000
4-34
1.a.
(15 min.) ormal costing, overhead allocation, working backward.
Manufacturing overhead allocated = 200% × Direct manufacturing labor cost
$3,600,000 = 2 × Direct manufacturing labor cost
Direct manufacturing labor cost =
b.
$3,600,000
= $1,800,000
2
Total manufacturing = Direct material + Direct manufacturing + Manufacturing
cost
used
labor cost
overhead allocated
$8,000,000 = Direct material used + $1,800,000 + $3,600,000
Direct material used = $2,600,000
2.
Work in Process + Total manufacturing cost =
1/1/2007
Cost of goods manufactured + Work in Process
1/1/2007
Denote Work in Process on 12/31/2007 by X
$320,000 + $8,000,000 = $7,920,000 + X
X = $400,000
4-6