Indirect Cost: Case Study
Ch4 #32, 34, 41
ACC307
#32 1) Professional Labor Hours
Indirect Costs
Direct Costs
Legal Support Indirect-Cost
Pool
Cost-Allocation
Base
Cost Object:
Direct Labor
Job for clients
Direct Costs
2) 2008 budgeted direct-cost rate per hour of professional labor
$104,000 / 1600 hours = $65 per professional labor hour
3) 2008 budgeted indirect-cost rate per hour of professional labor
$2,200,000 / (25 x 1600 hours) = $55 per professional labor hour
4) a. Litigation work for Richardson, Inc., which requires 100 budgeted hours of professional labor. (Prepare cost estimate)
Direct costs Direct labor cost: $65 x 100 = $6,500
Indirect costs Legal …show more content…
Proration based on ending balance (before proration) in WIP Control, FG Control, and COGS Account | Account Balance | Proration of $400,000 of | Account Balance | | (Before Proration) | Underallocated MFG O/H | (After Proration) | WIP Control | 750,000 | .075 x 400,000 = 30,000 | 780,000 | FG Control | 1,250,000 | .125 x 400,000 = 50,000 | 1,300,000 | COGS | 8,000,000 | .8 x 400,000 = 320,000 | 8,320,000 | Total | 10,000,000 | | 10,400,000 |
c. Proration based on the overhead allocated in 2009 (before proration) in the ending balances of WIP Control, FG Control, and COGS Account | Account Balance | Allocated MFG O/H Included | Proration of $400,000 of | Account Balance | | (Before Proration) | In Each Acct Bal(Before Pro) | Underallocated MFG O/H | (After Proration) | WIP Control | 750,000 | 240000/4500000 = 0.0533 | .0533 x 400,000 = 21,320 | 780,000 | FG Control | 1,250,000 | 660000/4500000 = 0.1467 | .1467 x 400,000 = 58,680 | 1,300,000 | COGS | 8,000,000 | 3600000/4500000 = 0.80 | .8 x 400,000 = 320,000 | 8,320,000 | Total | 10,000,000 | 4,500,000 | 400,000 | 10,400,000 |
3) I would prefer the method c, because it has all its allocated indirect cost based on the actual indirect cost …show more content…
Written off to CCT
Cost of Completed Tours (CCT) $400
Overhead Allocated $2,100
Overhead Control $2,500
CCT = 5650 + 400 = $6,050
b. Prorated based on the ending balances (before proration) in TIP and CCT Account | Account Balance 6/30 | Proration of $400 of | Account Balance 6/30 | | (Before Proration) | Underallocated MFG O/H | (After Proration) | TIP Control | 2,100 | 2100/7750 = .271 x 400 = $108 | 2100 + 108 = $2,208 | CCT Control | 5,650 | 5650/7750 = .729 x 400 = $292 | 5,650 + 292 = $5,942 | Total | 7,750 | 400 | 8,150 |
c. Prorated based on the overhead allocated in June in the ending balances of TIP and CCT (before proration) Account | Account Balance 6/30 | Allocated O/H Included | Proration of $400 of | Account Balance 6/30 | | (Before Proration) | In Each Acct Bal(Bef Pro) | Underallocated MFG O/H | (After Proration) | TIP Control | 2,100 | 900 | 900/2100 = 0.43 x 400 = $172 | 2100 + 172 = $2,272 | CCT Control | 5,650 | 1,200 | 1200/5650 = 0.57 x 400 = $228 | 5,650 + 228 = $5,878 | Total | 7,750 | 2,100 | 400 | 8,150
ACC307
#32 1) Professional Labor Hours
Indirect Costs
Direct Costs
Legal Support Indirect-Cost
Pool
Cost-Allocation
Base
Cost Object:
Direct Labor
Job for clients
Direct Costs
2) 2008 budgeted direct-cost rate per hour of professional labor
$104,000 / 1600 hours = $65 per professional labor hour
3) 2008 budgeted indirect-cost rate per hour of professional labor
$2,200,000 / (25 x 1600 hours) = $55 per professional labor hour
4) a. Litigation work for Richardson, Inc., which requires 100 budgeted hours of professional labor. (Prepare cost estimate)
Direct costs Direct labor cost: $65 x 100 = $6,500
Indirect costs Legal …show more content…
Proration based on ending balance (before proration) in WIP Control, FG Control, and COGS Account | Account Balance | Proration of $400,000 of | Account Balance | | (Before Proration) | Underallocated MFG O/H | (After Proration) | WIP Control | 750,000 | .075 x 400,000 = 30,000 | 780,000 | FG Control | 1,250,000 | .125 x 400,000 = 50,000 | 1,300,000 | COGS | 8,000,000 | .8 x 400,000 = 320,000 | 8,320,000 | Total | 10,000,000 | | 10,400,000 |
c. Proration based on the overhead allocated in 2009 (before proration) in the ending balances of WIP Control, FG Control, and COGS Account | Account Balance | Allocated MFG O/H Included | Proration of $400,000 of | Account Balance | | (Before Proration) | In Each Acct Bal(Before Pro) | Underallocated MFG O/H | (After Proration) | WIP Control | 750,000 | 240000/4500000 = 0.0533 | .0533 x 400,000 = 21,320 | 780,000 | FG Control | 1,250,000 | 660000/4500000 = 0.1467 | .1467 x 400,000 = 58,680 | 1,300,000 | COGS | 8,000,000 | 3600000/4500000 = 0.80 | .8 x 400,000 = 320,000 | 8,320,000 | Total | 10,000,000 | 4,500,000 | 400,000 | 10,400,000 |
3) I would prefer the method c, because it has all its allocated indirect cost based on the actual indirect cost …show more content…
Written off to CCT
Cost of Completed Tours (CCT) $400
Overhead Allocated $2,100
Overhead Control $2,500
CCT = 5650 + 400 = $6,050
b. Prorated based on the ending balances (before proration) in TIP and CCT Account | Account Balance 6/30 | Proration of $400 of | Account Balance 6/30 | | (Before Proration) | Underallocated MFG O/H | (After Proration) | TIP Control | 2,100 | 2100/7750 = .271 x 400 = $108 | 2100 + 108 = $2,208 | CCT Control | 5,650 | 5650/7750 = .729 x 400 = $292 | 5,650 + 292 = $5,942 | Total | 7,750 | 400 | 8,150 |
c. Prorated based on the overhead allocated in June in the ending balances of TIP and CCT (before proration) Account | Account Balance 6/30 | Allocated O/H Included | Proration of $400 of | Account Balance 6/30 | | (Before Proration) | In Each Acct Bal(Bef Pro) | Underallocated MFG O/H | (After Proration) | TIP Control | 2,100 | 900 | 900/2100 = 0.43 x 400 = $172 | 2100 + 172 = $2,272 | CCT Control | 5,650 | 1,200 | 1200/5650 = 0.57 x 400 = $228 | 5,650 + 228 = $5,878 | Total | 7,750 | 2,100 | 400 | 8,150