Question $1$

LO$6\mathrm{.}76\mathrm{.}8$ Job costing using client cost sheet; fraud investigation: accounting firm

Black and White is an accounting firm that specializes in fraud investigation. In June, Jackson Maximillen the general manager of Jazzy Industries, approached Michael House, a partner of Black and White, to discuss a problem that has arisen in one of his warehouses. Maximillen is not sure whether fraud is involved or not, but over the past year there have been a series of unexplained inventory shortages, and he has heard rumors of some warehouse staff selling supplies for cash to friends, at greatly reduced prices. Maximillen would like Black and White to conduct an investigation to see if there is any evidence of misappropriation. This matter is urgent and Maximillen would like a final report within the next two weeks. Michael House agrees to undertake the investigation. He will oversee the project; William will manage the project and Gabriel will assist. The following labor rates apply:

Michael House

Partner

$$150$

William

Manager

$$100$

Gabriel

Investigator

$$60$

At the end of each week, every employee of Black and White completes a time sheet online, to account for each hour of their day. The following extracts are taken from time sheets for the three staff involved in the investigation. The Jazzy Industries case has been assigned the code $4506$B:

Michael House

Date

Case

Detail

Time $($Hours$)$

$1$ June

$4506$B

Initial meeting with Maximillen

$1$

$3547$A

Delivery of final report

$2$

$4508$F

Initial meeting with Aboz Ltd

$1$

$4506$B

Briefing meeting with William and Gabriel

$1$

$3$ June

$9506$B

Review of investigation plan

$2$

$4508$F

Assessment of review

$1$

$2408$D

Report recommendations

$1$

$78432$S

Briefing to police

$1$

$4540$D

Meeting with lawyers

$2$

$10$ June

$4506$B

Discussion of final report with William and Gabriel

$3$

$11$ June

$4506$E

Delivery of final report

$2$

William

Date

Case

Detail

Time $($Hours$)$

$1$ June

$4506$B

Initial meeting with Maximillen

$1$

$4506$B

Briefing meeting with Michael House and Gabriel

$1$

$2$ June

$4506$B

Review of investigation plan with Gabriel

$2$

$6592$F

Delivery of final report

$4$

$3$ June

$4506$B

On$-$site review of inventory ordering systems

$5$

$4506$B

Interviews with suppliers

$3$

$6$ June

$4506$B

Consultation with Gabriel

$2$

$4506$B

Interview of key managers

$3$

$4508$B

Review of transactions

$3$

$9$ June

$4506$B

Meeting with Gabriel to review report

$2$

$4508$B

Computer audit of master files

$6$

$10$ June

$4506$B

Discussion of final report with Michael House and Gabriel

$3$

Gabriel

Date

Case

Detail

Time $($Hours$)$

$1$ June

$4506$B

Briefing meeting with Michael House and William

$1$

$2$ June

$4506$B

Preparation of investigation plan

$6$

$4506$B

Review of investigation plan with William

$2$

$3$ June

$4506$B

Initial interviews with warehouse staff

$4$

$4506$B

Documentation of ordering procedures

$4$

$6$ June

$4506$B

Consultation with William

$2$

Character checks of key employees

$4$

Checking of supplier history

$2$

$7$ June

$4506$B

Checking of supplier history

$2$

$4506$B

Random check of inventory and supplier transactions

$6$

$8$ June

$4506$B

Preparation of draft report

$8$

$9$ June

$4506$B

Meeting with William to review report

$2$

$4506$B

Edit report

$3$

$10$ June

$4506$B

Discussion of final report with Michael House and William

$3$

Black and White calculate a predetermined overhead rate to cover support staff salaries, office rent, utilities and telecommunication costs, marketing costs. and other costs of running the firm. Professional labor costs make up about $75\%$ of the firm's total operating costs. The anticipated overhead cost for the current year is $$4000000.$

Required:

a$.$ Calculate the predetermined overhead rate per dollar of professional labor.

b$.$ Explain how the firm can justify using a single overhead rate to cost each case.

c$.$ Use the information in the time sheets to prepare a client cost sheet for the Jazzy Industries investigation, similar to that in Exhibit $6\mathrm{.}8.$

d$.$ Determine the total cost of the investigation.