PLEASE NOTE THERE ARE TWO SEPARATE PROBLEMS THAT INVOLVE THE SAME INFORMATION

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PROBLEM $1$

$5-31.$ JOB COSTING WITH SINGLE DIRECT$-$COST CATEGORY, SINGLE INDIRECT$-$COST POOL, LAW FIRM.

Timlin Associates is a recently formed law partnership. Rachel Hamilton, the managing partner of Timlin Associates, has just finished a tense phone call with Phil Lopez, president of Lopez Enterprises. Phil strongly complained about the price Timlin charged for some legal work done for his company.

Hamilton also received a phone call from Timlin$$s only other client, Clinical Inc., which was very pleased with both the quality of the work and the price charged on its most recent job.

Timlin Associates operates at capacity and uses a cost$-$based approach to pricing $($billing$)$ each job. Currently it uses a simple costing system with a single direct$-$cost category $($professional labor$-$hours$)$ and a single indirect$-$cost pool $($general support$).$ Indirect costs are allocated to cases on the basis of professional labor$-$hours per case. The job files show the following:

Professional Labor:

Lopez Enterprises: $2,500$ hours

Clinical Inc.: $2,500$ hours

Professional labor costs at Timlin Associates are $$250$ an hour. Indirect costs are allocated to cases at $$125$ an hour. Total indirect costs in the most recent period were $$625,000.$

$***$Required$***$

$1.1.$ Why is it important for Timlin Associates to understand the costs associated with individual jobs?

$2.2.$ Compute the costs of the Lopez Enterprises and Clinical Inc. jobs using Timlin$$s simple costing system.

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PROBLEM $2$

$5-32.$ JOB COSTING WITH MULTIPLE DIRECT$-$COST CATEGORIES, SINGLE INDIRECT$-$COST P OOL, LAW FIRM $($CONTINUATION OF $5-31).$

Rachel Hamilton, the managing partner of Timlin Associates, asks her assistant to collect details on those costs included in the $$625,000$ indirect$-$cost pool that can be traced to each individual job. After analysis, Timlin is able to reclassify $$450,000$ of the $$625,000$ as direct costs:

The table depicts direct costs, including research support labor, computer time, travel and allowances, telephones$/$faxes$,$ and photocopying for Lopez Enterprises and Clinical Inc, as well as total costs. The details of the table are as follows:

Research support labor

Lopez Enterprises: $41,000$ dollars Clinical Inc.: $232,500$ dollars

Computer time

Lopez Enterprises: $4,000$ dollars Clinical Inc.: $31,000$ dollars

Travel and allowances

Lopez Enterprises: $14,000$ dollars Clinical Inc.: $81,000$ dollars

Telephones$/$faxes

Lopez Enterprises: $4,500$ dollars Clinical Inc.: $21,000$ dollars

Photocopying

Lopez Enterprises: $6,500$ dollars Clinical Inc.: $14,500$ dollars

Total

Lopez Enterprises: $70,000$ dollars Clinical Inc.: $380,000$ dollars

Hamilton decides to calculate the costs of each job as if Timlin had used six direct$-$cost pools and a single indirect$-$cost pool. The single indirect$-$cost pool would have $$175,000$ of costs and would be allocated to each case using the professional labor$-$hours base.

$***$Required$***$

$1.$ Calculate the revised indirect$-$cost allocation rate per professional labor$-$hour for Timlin Associates when total indirect costs are $$175,000.$

$2.$ Compute the costs of the Lopez Enterprises and Clinical Inc. jobs if Timlin Associates had used its refined costing system with multiple direct$-$cost categories and one indirect$-$cost pool.

$3.$ Compare the costs of Lopez Enterprises and Clinical Inc. jobs in requirement $2$ with those calculated using the simple costing system. Comment on the results.