Chapter 5, Problem 5.33P

Job costing with multiple direct-cost categories, multiple indirect-cost pools, law firm (continuation of 5-31 and 5-32). Wharton has two classifications of professional staff: partners and associates. Peyton asks his assistant to examine the relative use of partners and associates on the recent Steger Enterprises and Bluestone Inc. jobs. The Steger Enterprises job used 1,000 partner-hours and 2,000 associate-hours. The Bluestone Inc. job used 1,500 partner-hours and 500 associate-hours. Therefore, totals of the two jobs together were 2,500 partner-hours and 2,500 associate-hours. Peyton decides to examine how using separate direct-cost rates for partners and associates and using separate indirect-cost pools for partners and associates would have affected the costs of the Steger Enterprises and Bluestone Inc. jobs. Indirect costs in each indirect-cost pool would be allocated on the basis of total hours of that category of professional labor. From the total indirect cost-pool of $200,000, $120,000 is attributable to the activities of partners and $80,000 is attributable to the activities of associates.

The rates per category of professional labor are as follows:

Category of Professional Labor	Direct Cost per Hour	Indirect Cost per Hour
Partner	$200	$120,000 ÷ 2,500 hours = $48
Associate	$120	$ 80,000 ÷ 2,500 hours = $32

1. 1. Compute the costs of the Steger Enterprises and Bluestone Inc. jobs using Wharton’s further refined system, with multiple direct-cost categories and multiple indirect-cost pools.

  Required

1. 2. For what decisions might Wharton Associates find it more useful to use this job-costing approach rather than the approaches in Problem 5-31 or 5-32?