Fifth edition Alnoor Bhimani Charles T. Horngren Srikant M. Datar Madhav V. Rajan Farah Ahamed

c Year-end write-off to cost of goods sold. 3.10

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Solutions to exercises 3.12 Computing direct-cost rates, consulting firm.

c Year-end write-off to cost of goods sold.
3.10
The adjusted allocation rate approach results in the most accurate record of individual job costs. It also gives the same closing balances of work in progress, finished goods and cost of goods sold that would have been reported had an actual indirect-cost rate been used. Proration approaches do not make any adjustment to individual job-cost records. Companies wanting an accurate record of job costs for pricing purposes, product profitability purposes and evaluating the performance of managers of those jobs will prefer the adjusted allocation rate approach.

Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 5
th
Edition, Instructor’s Manual
© Pearson Education Limited 2012
Solutions to exercises
3.12
Computing direct-cost rates, consulting firm. (15–20 min)
1 and 2
(ab bAverage
salary +
average
fringe
benefits (€)
(b) Billable
time for
clients
(c) Total
time
(d) = (ab b(b) Rate
per billable
hour (€)
(e) = (ac)
Rate per
total hour (€)
Director
200,000
1,600
2,000
125.00
100

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