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# Determine the pre determined overhead cost from the given data.

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Determine the pre determined overhead cost from the given data.
Winkle, Kotter, and Zale is a small law firm that contains 10 partners and 10 support persons. The firm employs a job-order costing system to accumulate costs chargeable to each client, and it is organized into two departments-the Research and Documents Department and the Litigation Department. The firm uses predetermined overhead rates to charge the costs of these departments t its clients. At the beginning of the current year, the firm's management made the following estimates for the year:

Department
Research and Documents Litigation
Research-hours 20,000 -
Direct attorney-hours 9,000 16,000
Materials and supplies \$18,000 \$5,000
Direct attorney cost \$430,000 \$800,000
Departmental overhead cost \$700,000 \$320,000

The predetermined overhead rate in the Research and Documents Department is based on research-hours, and the rate in the Litigation Department is based on direct attorney cost.

The costs charged to each client are made up of three elements: materials and supplies used, direct attorney cost incurred, and an applied amount of overhead from each department in which work is performed on the case.

Case 618-3 was initiated on February 10 and completed on June 30. During this period, the following costs and time were recorded on the case:

Department
Research and Documents Litigation
Research-hours 18 -
Direct attorney-hours 9 42
Materials and supplies \$50 \$30
Direct attorney cost \$410 \$2,100

Required:
1.Compute the predetermined overhead rate used during the year in the Research and Documents Department. Compute the rate used in the Litigation Department.
2.Using the rates you computed in (1) above, compute the total overhead cost apple to case 618-3.
3. What would be the total cost charged to case 618-3? Show computations by department and in total for the case.
4. At the end of the year, the firm's records revealed the following actual cost and operating data for all cases handled during the year:
Department
Research and Documents Litigation
Research-hours 23,000 -
Direct attorney-hours 8,000 15,000
Materials and supplies \$19,000 \$6,000
Direct attorney cost \$400,000 \$725,000
Departmental overhead cost \$770,000 \$300,000

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#### Solution Preview

Determine the pre determined overhead cost from the given data.
Determine the pre determined overhead cost from the given data.
Winkle, Kotter, and Zale is a small law firm that contains 10 partners and 10 support persons. The firm employs a job-order costing system to accumulate costs chargeable to each client, and it is organized into two departments-the Research and Documents Department and the Litigation Department. The firm uses predetermined overhead rates to charge the costs of these departments t its clients. At the beginning of the current year, the firm's management made the following estimates for the year:

Department
Research and Documents Litigation
Research-hours 20,000 -
Direct attorney-hours 9,000 ...

\$2.19

## Analysis of mixed cost problems

I need help understanding and answering the attached questions.

Ruedi Bärlach PLC, a company located in Gümligen, Switzerland, manufactures custom-designed high-precision industrial tools. The company has a traditional job-order costing system in which direct labor and direct materials costs are assigned directly to jobs, but factory overhead is applied to jobs using a predetermined overhead rate based on direct labour-hours. Management uses this job cost data for valuing cost of goods sold and inventories for external reports. For internal decision-making, management has largely ignored this cost data since direct labor costs are basically fixed and management believes overhead costs actually have little to do with direct labour-hours. Recently, management has become interested in activity-based costing (ABC) as a way of estimating job costs and other costs for decision-making purposes.

Management assembled a cross-functional team to design a prototype ABC system. Electrical costs were among the first factory overhead costs investigated by the team. Electricity is used to provide light, to power equipment, and to heat the building in the winter. The ABC team proposed allocating electrical costs to jobs based on machine-hours since running the machines consumes significant amounts of electricity. Data assembled by the team concerning actual direct labour-hours, machine hours, and electrical costs over a recent eight-week period have been entered into the spreadsheet that appears below. (The Swiss currency is the Swiss franc, which is denoted by SFr.)

To help assess the effect of the proposed change to machine-hours as the allocation base, the above eight-week totals were converted to annual figures by multiplying them by six.

Required:
1. Assume that the estimated annual totals shown above are used to compute the company's predetermined overhead rate. What would be the predetermined overhead rate for electrical costs if the allocation base is direct labour-hours? Machine-hours?
2. Management intends to bid on a job for a set of custom tools for a watchmaker that would require 30 direct labor-hours and 25 machine-hours. How much electrical cost would be charged to this job using the predetermined overhead rate computed in part (1) above if the allocation base is direct labour-hours? machine-hours?
3. What factors, apart from direct labour-hours and machine-hours, are likely to affect consumption of electrical power in the company?

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