Exam 6: Service and Operations Costing

Rachel Thomas owns a law practice.She wishes to earn an income of $400 000 from the business (ignore tax).She expects to work 800 hours on clients in the year,if client work develops as expected.The firm incurs the following costs - leases of $1000 per month and salaries of $2000 per month. How much must Rachel charge per hour,in order to earn her target profit?

Lewis and Partners is a legal firm that measures and tracks costs for individual clients separately.While most client work requires some automation time,management has determined that direct labour cost drives its service overhead costs.During the month of September,the following data were available for Client #234: Direct labour $\quad$ $\quad$ $\quad$ 200 hours at $\$ 15$ per hour If total overhead costs during the month totalled $5000 when a total of $20 000 in direct labour costs were incurred,what will be the overhead allocated to Client #234?

Which of the following costs is the most likely to be traced to a customer in a service costing environment?

Which of the following costs is most likely not applicable in a service costing environment?

Evaluate the following statement - direct labour is the main cost in service organisations.

A low level of contact time most closely relates to which of the following cost systems?

The key to allocating overhead costs in service organisations is the determination of the ______.

Audrey Cleaners is a large cleaning business.They use operations costing to measure and track the costs incurred for specific product lines.While most of the products do require some machine time,managers have determined that total labour hours drive its manufacturing overhead costs.Traditionally,indirect labour hours are one fifth of total direct labour hours.During the month of June,the following data is provided for the time worked on a large job: Direct labaur $\quad$ $\quad$ 3000 hours at $\$ 10$ per hour If total overhead costs during the month was $16 000 when a total of 20 000 total labour hours were worked,what is the overhead allocated to the large job?

Sandy Retailers uses operational costing.A customer has requested 2000 units of a product.Sandy Retailers estimates the following will be incurred to fulfil the customer order: Total direct labour hours 75 hours Direct labour cost per hour \ 25 per hour In addition,they allocate overhead based on direct labour hours.At the beginning of this year,they estimated overhead costs would total $1 000 000 and direct labour hours would be 200 000. Required: A. What will be the predetermined cverhead rate used during the year? B. What will be the tatal manufacturing casts for the above customer's arder?

Sherrell Inc.runs an IT consulting firm.Sharon Sherrell,the lead partner,insists that the accountants apply overhead using machine hours.The following data are available for the year: Estimated machine hours 210000 Actual machine hours 160000 Actual overhead \ 790000 At the end of the year,it was determined that overhead was overapplied by $50 000. Required: A. What was the total appled cverhead for the year? B. What was the predetermined cverhead rate?

Mike Lowry runs a highly successful Internet cafe.He incurs costs of $10 000 per week for salaries,and expects his business to bill 5000 hours per month.He also pays rent of $30 000 per year,and incurs other fixed costs totalling $2000 per month.Mike desires a profit of $300 000 per year (not including taxes). Required: A.What is the minimum rate Mike must bill his clients per hour to avoid making a loss? B.What must Mike bill his clients per hour in order to earn his target profit?

A professional service firm is characterised by:

Which of the following managers stands to most benefit from a service profit value chain analysis?

Jenny Lane is considering how best to charge her clients for her accounting services.She incurs costs of $12 000 in staff costs per month,and expects her business to bill 500 hours per month.She also pays rent of $48 000 per year,and her administrative fixed costs total $8000 per month.Jenny desires a profit of $240 000 per year (not including taxes). Required: A.What is the minimum rate Jenny must bill her clients per hour to avoid making a loss? B.What must Jenny bill her clients per hour in order to earn her target profit?

Which of the following characteristics does not explain a service shop organisation?

How is internal service quality related to external service value,as per the service profit value chain?

Service shops most closely relates to which of the following cost systems?

Mighty Mac Mobile phone services uses operational costing.One of their customers has requested 2000 units of an identical mobile phone.Mighty Mac estimates the following will be incurred to fulfil the customer order: Total direct materials \1 00000 Total direct labour hours 40 hours Direct labour cost per hour \ 25 per hour In addition,Mighty Mac allocates overhead based on direct labour cost.At the beginning of this year,they estimated overhead costs would total $900 000 and direct labour would cost a total of $2 400 000. Required: A. What will be the predetermined cverhead rate used during the year? B. What will be the tatal manufacturing casts for the above customer's arder?

What is the purpose of a service profit value chain?

Which of the following statements regarding service costing is true?