5th Edition

ISBN: 9780134067254

Author: Braun

Publisher: PEARSON

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Textbook Question

Chapter 4, Problem 4.22AE

Using ABC to bill clients at a service firm (Learning Objective 2)

Kushner & Company is an architectural firm specializing in home remodeling for private clients and new office buildings for corporate clients.

Kushner charges customers at a billing rate equal to 130% of the client’s total job cost. A client’s total job cost is a combination of (1) professional time spent on the client ($63 per hour cost of employing each professional) and (2) operating overhead allocated to the client’s job. Kushner allocates operating overhead to jobs based on professional hours spent on the job. Kushner estimates its five professionals will incur a total of 10,000 professional hours working on client jobs during the year.

All operating costs other than professional salaries (travel reimbursements, copy costs, secretarial salaries, office lease, and so forth) can be assigned to the three activities. Total activity costs, cost drivers, and total usage of those cost drivers are estimated as follows:

Chapter 4, Problem 4.22AE, Using ABC to bill clients at a service firm (Learning Objective 2) Kushner Company is an , example 1

Chapter 4, Problem 4.22AE, Using ABC to bill clients at a service firm (Learning Objective 2) Kushner Company is an , example 2 Yimeng Li hired Kushner to design her kitchen remodeling. A total of 25 professional hours were incurred on this job. In addition, Li’s remodeling job required one of the professionals to travel back and forth to her house for a total of 125 miles. The blueprints had to be copied four times because Li changed the plans several times. In addition, 15 hours of secretarial time were used lining up the subcontractors for the job.

Requirements

1. Calculate the current indirect cost allocation rate per professional hour.
2. Calculate the total amount that would be billed to Li given the current costing structure.
3. Calculate the activity cost allocation rates that could be used to allocate operating overhead costs to client jobs.
4. Calculate the amount that would be billed to Li using ABC costing.
5. Which type of billing system is more fair to clients? Explain.

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Chapter 4, Problem 4.21AE

Chapter 4, Problem 4.23AE

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Chapter 4 Solutions

Managerial Accounting (5th Edition)

Ch. 4 - Understanding key terms (Learning Objectives 1, 2,...Ch. 4 - Use departmental overhead rates to allocate...Ch. 4 - Compute departmental overhead rates (Learning...Ch. 4 - Prob. 4.4SE Ch. 4 - Prob. 4.5SE Ch. 4 - Calculate a job cost using ABC (Learning Objective...Ch. 4 - Classifying costs within the cost hierarchy...Ch. 4 - Classifying costs within the cost hierarchy...Ch. 4 - Determine the usefulness of refined costing...Ch. 4 - Prob. 4.10SE Ch. 4 - Identifying costs as value-added or...Ch. 4 - Identify lean production characteristics (Learning...Ch. 4 - Identify the DOWNTIME activities at a manufacturer...Ch. 4 - Prob. 4.14SE Ch. 4 - Classifying costs of quality (Learning Objective...Ch. 4 - Quality initiative decision (Learning Objective 5)...Ch. 4 - Assess the impact of a quality initiative...Ch. 4 - Identify ethical standards violated (Learning...Ch. 4 - Compare traditional and departmental cost...Ch. 4 - Compute activity rates and apply to jobs (Learning...Ch. 4 - Apply activity cost allocation rates (Learning...Ch. 4 - Using ABC to bill clients at a service firm...Ch. 4 - Compare traditional and ABC allocations at a...Ch. 4 - Compare traditional and ABC allocations on a job...Ch. 4 - Use ABC to allocate manufacturing overhead...Ch. 4 - Continuation of E4-25A: Determine product...Ch. 4 - Prob. 4.27AE Ch. 4 - Classify costs and make a quality-initiative...Ch. 4 - Prob. 4.29AE Ch. 4 - Compare traditional and departmental cost...Ch. 4 - Prob. 4.31BE Ch. 4 - Prob. 4.32BE Ch. 4 - Prob. 4.33BE Ch. 4 - Compare traditional and ABC cost allocations at a...Ch. 4 - Prob. 4.35BE Ch. 4 - Prob. 4.36BE Ch. 4 - Prob. 4.37BE Ch. 4 - Prob. 4.38BE Ch. 4 - Classify costs and make a quality-initiative...Ch. 4 - Prob. 4.40BE Ch. 4 - Prob. 4.41AP Ch. 4 - Use ABC to compute full product costs (Learning...Ch. 4 - Prob. 4.43AP Ch. 4 - Prob. 4.44AP Ch. 4 - Prob. 4.45AP Ch. 4 - Prob. 4.46BP Ch. 4 - Prob. 4.47BP Ch. 4 - Comprehensive ABC implementation (Learning...Ch. 4 - Using ABC in conjunction with quality decisions...Ch. 4 - Comprehensive ABC (Learning Objectives 2 3)...Ch. 4 - Prob. 4.51SC Ch. 4 - Discussion Questions 1. Explain why departmental...Ch. 4 - ABC in Real Companies Choose a company in any of...Ch. 4 - Value-Added versus Non-Value-Added at a Restaurant...Ch. 4 - Ethics involved with ABC and hazardous waste costs...

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Solution Summary: The author calculates the amount to be billed to L using the current indirect cost allocation rate. They also calculate activity cost rates that could be used to allocate operating overhead.

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