Acc505 Managerial Accounting: P3-25 Hobart, Evans, and Nix is a small law firm that employs

Important Reminder!!! There might be other versions of this problem - amounts and dates have been changed - so please make sure you review and compare this tutorial to the problem in your homework.

Acc505 Managerial Accounting
Problem 3-25 Multiple Departments; Overhead Rates; Underapplied or Overapplied Overhead
Hobart, Evans, and Nix is a small law firm that employs 10 partners and 12 support persons. The firm uses a job-order costing system to accumulate costs changeable 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 change the costs of these departments to its clients. At the beginning of the year, the firm's management made the following estimates for the year: Department
Research and Documents Litigation
Research-hour 24,000
Direct attorney-hour 9,000 18,000
Legal forms and supplies 16,000 5,000
Direct attorney cost 450,000 900,000
Departmental overhead cost 840,000 360,000

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: legal forms 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 418-3 was initiated on February 23 and completed on May 16. during this period, the following costs and time were recorded on the case:
Department
Research and Documents Litigation
Research-hour 26
Direct attorney-hour 7 114
Legal forms and supplies 80 40
Direct attorney cost 350 5,700

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 applied to Case 418-3.
3. What would be the total cost charged in Case 418-3? 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-hour 26,000
Direct attorney-hour 8,000 15,000
Legal forms and supplies 19,000 6,000
Direct attorney cost 400,000 750,000
Departmental overhead cost 870,000 315,000
Determine the amount of underapplied or overapplied overhead cost in each department for the year.
Powered by