Morgan & Morgan Is a Small Firm That Assists Clients

question 58

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:

Price Elasticity

A measure of how much the quantity demanded of a good responds to a change in its price, with high elasticity indicating sensitivity to price changes.

Supplier

An entity that provides goods or services, typically in exchange for payment.

Revenue

The total income generated by a firm from its business activities, typically from the sale of goods and services to customers.

Midpoint Method

A technique used in economics to calculate the elasticity of demand or supply by using the average of the initial and final quantities and prices.