Service Industry: Job Costing
Keating & Associates is a law firm specializing in labor relations and employee-related work. It employs 25 professionals (5 partners and 20 associates) who work directly with its clients. The average budgeted total compensation per professional for 2008 is $104,000. Each professional is budgeted to have 1,600 billable hours to clients in 2008. All professionals work for clients to their maximum 1,600 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 Keating & 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 2008 is $2,200,000.
- Prepare an overview diagram of Keating’s job-costing system.
- Compute the 2008 budgeted direct-cost rate per hour of professional labor.
- Compute the 2008 budgeted indirect-cost rate per hour of professional labor.
- Keating & Associates is considering bidding on two jobs (prepare a cost estimate for each job):
a. Litigation work for Richardson, Inc., which requires 100 budgeted hours of professional labor.
b. Labor contract work for Punch, Inc., which requires 150 budgeted hours of professional labor.