Thanatos & Hades (T&H) is a law firm that specializes in writing wills. Its job-costing system has one direct cost pool, professional labour, and a single indirect cost pool that includes all supporting costs of running the law office. The support costs are allocated to clients on the basis of professional labour-hours. In addition to the two senior partners at T&H, there are six associates who work directly with clients. Each of the eight lawyers is expected to work for approximately 2,500 hours per year.
Budgeted and actual costs for 2012 were:
Budgeted professional labour costs ....... $1,100,000
Budgeted support costs .......... $2,000,000
Actual professional labour costs ....... $1,320,000
Actual support costs ............ $2,400,000
Actual total professional hours ....... 22,000 hours
1. Compute the direct cost rate and the indirect cost rate per professional labour-hour under:
a. Actual costing.
b. Normal costing.
c. Variation from normal costing that uses budgeted rates for direct costs.
2. The will for a rich tycoon, Ari Roos, was very complex and took four lawyers at the firm
1,000 hours each to prepare. What would be the cost of writing this will under each of the costing methods in requirement 1?