Problem
Chiraq and partners is a Quebec based public accounting partnership specializing in audit services. Its job costing system has a single direct cost category (professional labor) and a single indirect cost pool (audit support, which contains all the costs in the Audit Support Department). Audit support costs are allocated to individuals using actual professional labor hours. Chiraq and partners employs 10 professionals who are involved in their auditing services.
Budgeted and Actual amounts for the year are as follows:
Budget for the year
Professional labor compensation $1,120,000
Audit support department costs $ 800,000
Professional labor hours billed to clients $16,000
Actual results for the year
Audit support department costs $852,500
Professional labor hours billed to clients 15,500 hours
Actual professional labor cost rate $68 per hour
Task
I. Identify the direct cost rate per professional labor hour and the indirect cost rate per professional labor hour for the year under (i) actual costing, (ii) normal costing, and (iii) variation of normal costing that uses budgeted rates for direct costs.
II. The audit for Pierre and company done in the year was budgeted to take 110 hours of professional labor time. The actual professional labor time on the audit was 120 hours. Compute the job costing using (i) actual costing, (ii) normal costing, and (iii) variation of normal costing that uses budgeted rates for direct costs. Explain any differences in the job cost.