Morgan & Morgan Is a Small Firm That Assists Clients

question 68

Essay

Morgan & Morgan is a small firm that assists clients in the preparation of their tax returns.The firm has five accountants and five researchers,and it uses job order costing to determine the cost of each client's return.The firm is divided into two departments: (1)Preparation and (2)Research & Planning.Each department has its own overhead application rate.The Preparation Department's rate is based on accountant labor costs and Research & Planning is based on the number of research hours.The following is the company's estimates for the current year's operations.
$\begin{array}{lrr}&\text { Preparation}&\text { Research \& }\\&&\text { Planning }\\\text { Accountant hours } & 8,000 & 3,000 \\\text { Research hours } & 0 & 3,000 \\\text { Accountant labor costs } & \$ 480,000 & \$ 135,000 \\\text { Materials and supplies } & 10,000 & 5,000 \\\text { Overhead costs } & 230,400 & 204,000\end{array}$
Client No.2006-713 was completed during April of the current year and incurred the following costs and hours:
$\begin{array}{lrr}&\text { Preparation}&\text { Research \& }\\&&\text { Planning }\\ \text { Accountant hours } & 30 & 4 \\\text { Research hours } & 0 & 8 \\\text { Materials and supplies } & 25 & \$ 15 \\\text { Accountant labor costs } & 1,800 & 180\end{array}$

a. Compute the overhead rates to be used by both departments.
b. Determine the cost of Client No. 2006-713, by department and in total.

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Definitions:

Impute Interest

The process of assigning an implied interest rate to an interest-free or below-market interest loan, which then becomes taxable under the Internal Revenue Code.

Deferred Payment

An arrangement that allows payment to be made at a later date, often used in installment purchases or loans.

Group-Term Life Insurance

A type of life insurance where coverage is provided to a group of people by an employer or association, often at a lower cost than individual policies.

Taxable

Refers to income or transactions that are subject to tax by federal, state, or local taxing authorities.