Winkle, Kotter, and Zale is a small law firm that contains 10 partners and 12 su

Question

Winkle, Kotter, and Zale is a small law firm that contains 10 partners and 12 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 to 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 costs 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:

    

1-a. Compute the predetermined overhead rate used during the year in the Research and Documents Department. (per hour)

1-b. Compute the predetermined overhead rate used during the year in the Litigation Department. (% of direct attorney cost).

2. Using the rates you computed in (1) above, compute the total overhead cost applied to Case 618–3.

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

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:

Department Research
and Documents Litigation Research-hours 20,500 - Direct attorney-hours 8,500 16,400 Materials and supplies $ 17,700 $ 5,400 Direct attorney cost $ 429,200 $ 799,500 Departmental overhead cost $ 717,500 $ 319,800

Explanation / Answer

Calculation of predetermined OH rate:

Research department= Estimated OH costt/ Research hours= 717500/20500= 35 per research hour

Litigation department= Estimated OH cost/ Total direct attorney cost= 319800/ 799500= 0.4 per direct attoreny cost

Total OH cost applied to job 618-3:

Reseach OH applied= 16* 35= 560

Litigation OH applied= 2200* 0.4= 880

Total OH applied= 1440

3. Total cost charged to Job:

4. Since there are no under or over application as per the data given, Incurrred cost= applied OH cost

Department Reseach and documents Litigation Total Materials 49 31 80 Direct attorney cost 400 2200 2600 Overhead 560 880 1440 Total cost 1009 3111 4120

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