Winkle, Kotter, and Zale is a small law firm that contains 10 partners and 10 su

Question

Winkle, Kotter, and Zale is a small law firm that contains 10 partners and 10 support persons. The firm employs a job-order costing system to accumulate costs chargeable to each client, and it is organized into two departments-the Research and Documents Department and the Litigation Department. The firm uses predetermined overhead rates to charge the costs of these departments t its clients. At the beginning of the current year, the firm's management made the following estimates for the year:

The predetermined overhead rate in the Research and Documents Department is based on research-hours, and the rate in the Litigation Department is based on direct attorney cost.

The costs charged to each client are made up of three elements: materials and supplies used, direct attorney cost incurred, and an applied amount of overhead from each department in which work is performed on the case.

Case 618-3 was initiated on February 10 and completed on June 30. During this period, the following costs and time were recorded on the case:

QUESTION 1 - Compute the predetermined overhead rates used during the year in the Research and Documents Department and the Litigation Department.  Show your work.

QUESTION 2 - Using the rates computed in QUESTION 1, compute the total overhead cost applied to Case 618-3.  Show your work.

QUESTION 3 - What would be the total cost charged to Case 618-3? Show computations by department and in total for the case.

QUESTION 4 - At the end of the year, the firm's records revealed the following ACTUAL cost and operating data for all cases handled during the year:

Determine the amount of underapplied or overapplied overhead cost in each department for the year.

Department Research and Documents Litigation Research-hours 20,000 - Direct attorney-hours 9,000 16,000 Materials and supplies $18,000 $5,000 Direct attorney cost $430,000 $800,000 Departmental overhead cost $700,000 $320,000

Explanation / Answer

Req 1: Pre-determined Overheads rate: Estimated Overheads of Deptt/ Activity base Research and documents: $ 700,000 /20,000 research hours: $ 35 per research hour Litigation: $ 320,000 / 16,000 attorneyy hours = $20 per attorney hours Req 2: Total Overheads cost for Case-618-3 Amount Research Deptt 630 (18 research hours @$35) Litigation deptt 840 (42 attorney horus @$20) Total Overheads incurred 1470 Req 3: RESEARCH LITIGATION TOTAL Material and supplies 50 30 80 direct attorney cost 410 2100 2510 Overheads applied 630 840 1470 Total cost 1090 2970 4060 Req 4: Under/Over applied overheads Research Litigation Total Overheads incurred 770000 300000 1070000 Less: Overheads applied Research (23000 hours @35) 805000 Litigation(15000 hours @$20) 300000 1105000 Over Applied overheads 35000 0 35000

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