Boyer and Kubek, architects, have been using a simplified costing system in which all professional labor costs are included in a single direct cost category, professional labor; and all overhead costs are included in a single indirect cost category, professional support, and allocated to jobs by using professional labor hours as the allocation base. Consider two clients: Don Pepes’s Restaurant, which required 27 hours of design work for a new addition, and Mr. Cash - C.P.A., who required plans for a new ultramodern home that took 39 hours to draw. The firm has two partners, who each earn a salary of $140,000 a year, and four associates, who each earn $65,000 per year. Each professional has 1,450 billable hours per year. The professional support is $1,090,000, which consists of $710,000 of design support and $360,000 of staff support. Don Pepe’s job required four hours of partner time and 22 hours of associate time. Mr. Cash , C.P.A. job required 20 hours of partner time and 20 hours of associate time. Required: Using the example of page 468 of the textbook do the following:

 1. Prepare job cost sheets for Don Pepe’s Restaurant and Mr. Cash, C.P,A, , using a simplified costing system with one direct and one indirect cost pool. 

2. Prepare job cost sheets for the two clients, using an activity-based costing system with two direct cost categories—partner labor and associate labor—and two indirect cost categories—design support and staff support. Use professional labor dollars as the cost allocation base for design support and professional labor hours for staff support. (Round rates to two decimal places.)

 3. Determine the amount by which each job was under- or - overcosted, using the simplified costing system.

Answer rating: 100% (QA)

Step 1 Activity based costing is the costing in ... View the full answer