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# Job Costing System with Direct and Indirect Cost Pools

JDS & Associate is a local public accounting firm. Its job costing system has a sing cost category (i.e. professional labor) and a single indirect cost pool (i.e. Audit Support Services) where all other operating costs are accumulated. Professional accountants on each job allocate both direct and indirect costs to individual jobs using the actual billable hours spent. JDS & Associates uses the budgeted costing system in their calculations.

The budgeted costs and figures for 2005 are as follows:
? Budgeted accounts' wages and benefits \$288,000
? Budgeted support department costs \$216,000
? Budgeted billable hours for accountants 4,800 hours

Need to compute
a) Direct cost rate per billable professional hour
b) Indirect cost rate per billable professional hour
c) The audit took 120 professional hours to perform. Calculate the cost allocation to the audit.

Next: using three direct cost pools - Professional labor, Technician, and travel. One indirect cost pool - Overhead.

The professional labor cost pool is unchanged. The budgeted annual cost of the Accounting Technician department is \$121,000. The cost pool's cost is allocated based on the number of technician hours spent on each job. The budgeted available time of the technicians for the year is expected to be 5,000 hours.

A third direct cost pool consists of the travel costs (i.e. vehicle mileage, hotel rooms and meals) for the personnel performing the job. The actual travel costs totalled \$1,200 for the audit.

The indirect cost pool, Overhead, includes all other operating costs for the public accounting firm. These costs are budgeted at \$95,000 for the year and are allocated based on the number of professional hours spent on a project.

Need to understand how to do the calculations.
a) Compute the direct cost rate for each cost pool
b) Compute the indirect cost rate for Overhead costs
c) The audit took 120 professional hours and 140 technician hours. Travel costs totalling \$1,200 are traced to the job

#### Solution Preview

JDS & Associate is a local public accounting firm. Its job costing system has a sing cost category (i.e. professional labor) and a single indirect cost pool (i.e. Audit Support Services) where all other operating costs are accumulated. Professional accountants on each job allocate both direct and indirect costs to individual jobs using the actual billable hours spent. JDS & Associates uses the budgeted costing system in their calculations.

The budgeted costs and figures for 2005 are as follows:
? Budgeted accounts' wages and benefits \$288,000
? Budgeted support department costs \$216,000
? Budgeted billable hours for accountants 4,800 hours

Need to compute
a) Direct cost rate per billable professional hour
b) Indirect cost rate per billable professional hour
c) The audit took 120 professional hours to perform. Calculate the cost allocation to the audit.

a) Direct cost rate per billable professional hour

=Budgeted accounts' wages and ...

#### Solution Summary

This solution contains step-by-step calculations to determine the direct cost, indirect cost and cost allocation for the audit. All formulas and workings are shown in an Excel file.

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