Problem 4-22 Multiple Departments; Overhead Rates; Underapplied or Overapplied (
ID: 2451270 • Letter: P
Question
Problem 4-22 Multiple Departments; Overhead Rates; Underapplied or Overapplied
(LO 4-1, LO 4-2, LO 4-3, LO 4-4)
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 to 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 su[[lies used, direct attorney costs incurred, and an applied amount of overhead from each department in which work is performed on the case.
Cae 618-3 was initiated on February 10 and completed on June 30. During this period, the following costs and time on the case.
Department
Research and Documents Litigation
Research – hours………………………………….. 18 _
Direct attorney…………………………………….. 9 42
Materials and supplies ………………………… $ 50 $30
Direct attorney cost……………………………… $410 $2,100
REQUIRED:
1. Compute the predetermined overhead rates used during the year in the Research and documents Department and Litigation Department.
2. Using the rate you computed in (1) above, compute the total overhead cost applied to Case 618-3.
3. What would be the total cost charged to Case 618-3? Show computation 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 $275,000
Departmental overhead cost……………….. $770,000 $300,000
Determine the amount of underapplied or overapplied overhead cost in each department for the year.
Explanation / Answer
Budget Estimate Details Research & Documents Litigation Research Hours 20,000 Direct Attorney Hours 9,000 16,000 Materials & Supplies 18,000 5,000 Direct Attorney Cost 430,000 800,000 Departmental OH cost 700,000 320,000 Predermined overhead rate based on Research Hrs 35.00 Predermined overhead rate based on Direct Attorney Cost 0.40 (the basis given in the question is Direct aatorney cost , solved the problem on the basis of that, though ideally it should be direct attorney hours) Ans 1. Details Research & Documents Litigation Predermined overhead rate based on Research Hrs in Research & Litigation 35.00 Predermined overhead rate based on Direct Attorney Cost in Litigation 0.40 Ans 2 Details Research & Documents Litigation Predermined overhead rate based on Research Hrs in Research & Litigation 35.00 No of Reasearch Hrs in case 618-3 18.00 Overhead applied for Research & Documents to Case 618-3 $ 630.00 Predermined overhead rate based on Direct Attorney Cost in Litigation 0.40 Direc Attorney cost in Litigation for case 618-3 2,100 Overhead applied to Case 618-3 from Litigation department 840 Total Overhead applied to case 618-3 $ 1,470.00 Ans 3 Total costs charged to case 618-3 Details Research & Documents Litigation Total Materials & Supplies 50 30 80 Direct Attorney Cost 410 2,100 2,510 Departmental OH applied 630 840 1,470 Total 1,090 2,970 4,060 Ans 4. Details Research & Documents Litigation Predermined overhead rate based on Research Hrs in Research & Litigation 35.00 No of Reasearch Hrs in year 23,000.00 Overhead applied for Research & Documents for year $ 805,000.00 Predermined overhead rate based on Direct Attorney Cost in Litigation 0.40 Direc Attorney cost in Litigation in year 275,000 Overhead applied in year from Litigation department 110,000 Total Overhead applied in Year $ 915,000 Total Actual Overhead $ 1,070,000 Underapplied Overhead $ 155,000
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