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Activity-Based Costing and Activity-Based Management Job costing with multiple direct-cost categories, single indirect-cost pool, law firm Wharton Associates is a recently formed law partnership. Wharton 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 for two of Wharton's clients, Steger Enterprises and Bluestone, Inc., can be found on the "JOBFILES" tab. Denise Peyton, the managing partner of Wharton Associates, asks her assistant to collect details on those costs included in the $500,000 indirect-cost pool that can be traced to each individual job (see "JOBFILES" tab for details). After analysis, Wharton is able to reclassify $300,000 of the $500,000 as direct costs. The direct costs can be found on the "JOBFILES" tab. Peyton decides to calculate the costs of each job as if Wharton had used six direct- cost pools and a single indirect-cost pool. The single indirect-cost pool would have $200,000 of costs and would be allocated to each case using the professional labor-hours base. Use the blue shaded areas on the ENTERANSWERS tab for inputs. Always use cell references and formulas where appropriate to receive full credit. If you copy/paste from the Instruction tab you will be marked wrong. Requirements 1 Calculate the revised indirect-cost allocation rate per professional labor-hour for Wharton Associates when total indirect costs are $200,000. 2 Compute the costs of the Steger Enterprises and Bluestone Inc. jobs if Wharton Associates had used its refined costing system with multiple direct- cost categories and one indirect-cost pool. 1. Calculate the revised indirect-cost allocation rate per professional labor-hour for Wharton Associates when total indirect costs are $200,000. (Always use cell references and formulas where appropriate to receive full credit. If you copy/paste from the Instruction tab you will be marked wrong. ) 40 per professional labor hour 2. Compute the costs of the Steger Enterprises and Bluestone Inc. jobs if Wharton Associates had used its refined costing system with multiple direct-cost categories and one indirect-cost pool. (Always use cell references and formulas where appropriate to receive full credit. If you copy/paste from the Instruction tab you will be marked wrong. ) 2. Compute the costs of the Steger Enterprises and Bluestone Inc. jobs if Wharton Associates had used its refined costing system with multiple direct-cost categories and one indirect-cost pool. (Always use cell references and formulas where appropriate to receive full credit. If you copy/paste from the Instruction tab you will be marked wrong. ) Steger Enterprises Bluestone Inc. Direct costs: Direct professional labor $480,000 $320,000 Research support labor Computer time Travel and allowances Telephone/faxes Photocopying Photocopying Total direct costs Indirect costs allocated Total costs of job 120,000 80,000 Steger Enterprises Bluestone Inc. 3,000 2,000 Professional labor hours Professional labor costs at Wharton Associates are $160 an hour. Indirect costs are allocated to cases at $100 an hour. Total indirect costs in the most recent period were $500,000. Total cost of the jobs using the simple costing system are as follows: Steger Enterprises Bluestone Inc. $480,000 $320,000 Direct professional labor Indirect costs allocated 300,000 200,000 1 2 Direct professional labor 3 Indirect costs allocated 4 Total 5 5 7 Other Direct Costs 3 Research support labor Computer time O Travel and allowances Telephone/faxes 2 Photocopying 3 Total 1 Steger Enterprises $480,000 300,000 $780,000 Steger Enterprises $36,000 8,000 14,000 5,000 6,000 $69,000 Bluestone Inc. $320,000 200,000 $520,000 Bluestone Inc. $77,000 32,000 84,000 24,000 14,000 $231,000