Dee Beach, the consultant introduced at the beginning of section three of the chapter, has obtained the following data relative to the Barnes & Riley consulting job: Partner Labor 5 2000 $250,000 Associate Labor 20 2000 $100,000 Number of Attorneys Annual billable hours per attorney Annual compensation per attorney Administrative Support $1,000,000 Legal Support $2,500,000 Annual overhead estimate Assume that the La Mesa job will require 50 partner hours and 20 associate hours, while the El Cajon job will require 15 partner hours and 55 associate hours Step 1- Complete the following... Using a simplified costing system with one direct cost category for professional labor and one indirect cost category for support costs with professional labor hours as the allocation base, compute the bid price for the La Mesa job and the El Cajon job, assuming a 25% mark-on percentage. (Round to the nearest whole dollar.) 1. 2. Do you think that your results seem reasonable? Step 2 - Using an activity-based costing system with two direct cost categories for partner labor and associate labor, and two indirect cost categories, one for legal support and one for administrative support with cost allocation bases of professional labor hours and partner labor hours, respectively, compute the bid price for the La Mesa job and the El Cajon job, assuming a 25% mark-on percentage. Step 3- Complete the following... Compute the difference in bid price for each job between the simplified costing system and the activity-based costing system 1. 2. Were the jobs under-costed, over-costed, or a combination of each? Which job had the greater differential, depending on which costing system was used, and why?
Dee Beach, the consultant introduced at the beginning of section three of the chapter, has obtained the following data relative to the Barnes & Riley consulting job: Partner Labor 5 2000 $250,000 Associate Labor 20 2000 $100,000 Number of Attorneys Annual billable hours per attorney Annual compensation per attorney Administrative Support $1,000,000 Legal Support $2,500,000 Annual overhead estimate Assume that the La Mesa job will require 50 partner hours and 20 associate hours, while the El Cajon job will require 15 partner hours and 55 associate hours Step 1- Complete the following... Using a simplified costing system with one direct cost category for professional labor and one indirect cost category for support costs with professional labor hours as the allocation base, compute the bid price for the La Mesa job and the El Cajon job, assuming a 25% mark-on percentage. (Round to the nearest whole dollar.) 1. 2. Do you think that your results seem reasonable? Step 2 - Using an activity-based costing system with two direct cost categories for partner labor and associate labor, and two indirect cost categories, one for legal support and one for administrative support with cost allocation bases of professional labor hours and partner labor hours, respectively, compute the bid price for the La Mesa job and the El Cajon job, assuming a 25% mark-on percentage. Step 3- Complete the following... Compute the difference in bid price for each job between the simplified costing system and the activity-based costing system 1. 2. Were the jobs under-costed, over-costed, or a combination of each? Which job had the greater differential, depending on which costing system was used, and why?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Dee Beach, the consultant introduced at the beginning of section three of the chapter, has obtained the
following data relative to the Barnes & Riley consulting job:
Partner Labor
5
2000
$250,000
Associate Labor
20
2000
$100,000
Number of Attorneys
Annual billable hours per attorney
Annual compensation per attorney
Administrative
Support
$1,000,000
Legal Support
$2,500,000
Annual overhead estimate
Assume that the La Mesa job will require 50 partner hours and 20 associate hours, while the El Cajon job
will require 15 partner hours and 55 associate hours
Step 1- Complete the following...
Using a simplified costing system with one direct cost category for professional labor and one
indirect cost category for support costs with professional labor hours as the allocation base,
compute the bid price for the La Mesa job and the El Cajon job, assuming a 25% mark-on
percentage. (Round to the nearest whole dollar.)
1.
2. Do you think that your results seem reasonable?
Step 2 - Using an activity-based costing system with two direct cost categories for partner labor and
associate labor, and two indirect cost categories, one for legal support and one for administrative
support with cost allocation bases of professional labor hours and partner labor hours, respectively,
compute the bid price for the La Mesa job and the El Cajon job, assuming a 25% mark-on percentage.
Step 3- Complete the following...
Compute the difference in bid price for each job between the simplified costing system and the
activity-based costing system
1.
2.
Were the jobs under-costed, over-costed, or a combination of each? Which job had the greater
differential, depending on which costing system was used, and why?
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