Question

Midtown Advertising Agency in Cincinnati, Ohio. This small ad agency has two managing partners who pay themselves annual salaries of $100,000 each, and an artistic staff of six people who each earn $50,000 per year. Fringe benefits for these professionals average 42 percent of their compensation. So Midtown Advertising Agency's direct professional labor budget is as follows Partner salaries Partner benefits (42%) $200,000 84,000 Total partner $284,000 compensation Artistic staff salaries Artistic staff benefits $300,000 126,000 (42%) Total artistic staff $426,000 compensation Midtown's accountant has estimated that one-third of the budgeted overhead cost is incurred to support the ad agency's two partners, and two-thirds of it goes to support the artistic staff During May, Midtown Advertising Agency completed an advertising project for Super Scoop Ice Cream Company. The contract required $1,800 in direct material, $1,200 of partner direct professional labor, and $2,000 of artistic staff direct professional labor Overhead is assigned to each ad contract at the rate of 89 percent of partner direct professional labor plus 118 percent of artistic staff direct labor. The total cost of the contract is computed as follows

Answer 1

Answer:

1		Partner		Artistic Staff	Total Budgeted Compensation
	Partner salaries	$       200,000	Artistic staff salaries	$ 300,000	$                              500,000
	Add: Partner benefits (42%)	84,000	Add:Artistic staff benefits (42%)	126,000	210,000
	Total partner compensation	$       284,000	Total artistic staff compensation	$ 426,000	710,000
2	Predetermined overhead rate = Total overhead ÷ Total budgeted compensation
	Predetermined overhead rate = 756000 ÷ 710000
	Predetermined overhead rate = 106% of per $ budgeted compensation
3	Direct professional labor (partner)	1,200
	Direct professional labor (artistic staff )	2,000
	Total Compensation	3,200
	Budgeted Overhead	3200 x 106% =	$                                                    3,392
4	Applied overhead using the single cost driver:		$                                                    3,392
	Applied overhead using two cost drivers:		$    3,428