The zaf radiator company uses a normal costing system

4-32Service industry, job costing, law firm.Kidman & Associates is a law firm specializing in labor relations and employee-related work. It employs 30 professionals (5 partners and 25 associates) who work directly with its clients. The average budgeted total compensation per professional for 2014 is $97,500. Each professional is budgeted to have 1,500 billable hours to clients in 2014. All professionals work for clients to their maximum 1,500 billable hours available. All professional labor costs are included in a single direct-cost category and are traced to jobs on a per-hour basis. All costs of Kidman & Associates other than professional labor costs are included in a single indirect-cost pool (legal support) and are allocated to jobs using professional labor-hours as the allocation base. The budgeted level of indirect costs in 2014 is $2,475,000.

1.Prepare an overview diagram of Kidman’s job-costing system.

2.Compute the 2014 budgeted direct-cost rate per hour of professional labor.

3.Compute the 2014 budgeted indirect-cost rate per hour of professional labor.

4.Kidman & Associates is considering bidding on two jobs:

a.Litigation work for Richardson, Inc., which requires 120 budgeted hours of professional labor

b.Labor contract work for Punch, Inc., which requires 160 budgeted hours of professional labor

Prepare a cost estimate for each job.

4-34Proration of overhead.(Z. Iqbal, adapted) The Zaf Radiator Company uses a normal-costing system with a single manufacturing overhead cost pool and machine-hours as the cost-allocation base. The following data are for 2014:

Budgeted manufacturing overhead costs $4,800,000

Overhead allocation base Machine-hours

Budgeted machine-hours 80,000

Manufacturing overhead costs incurred $4,900,000

Actual machine-hours 75,000

Machine-hours data and the ending balances (before proration of under- or over allocated overhead) are as follows:

Actual Machine-Hours 2014 End-of-Year Balance

Cost of Goods Sold 60,000 $8,000,000

Finished Goods Control 11,000 1,250,000

Work-in-Process Control 4,000 750,000

1.Compute the budgeted manufacturing overhead rate for 2014.

2.Compute the under- or over allocated manufacturing overhead of Zaf Radiator in 2014. Dispose of this amount using the following:

a.Write off to Cost of Goods Sold

b.Proration based on ending balances (before proration) in Work-in-Process Control, Finished Goods

Control, and Cost of Goods Sold

c.Proration based on the overhead allocated in 2014 (before proration) in the ending balances of

Work-in-Process Control, Finished Goods Control, and Cost of Goods Sold

3.Which method do you prefer in requirement 2? Explain.