Question

Allocation Busters (AB) is a dispute mediation firm offering services to firms in disputes about cost allocations with government agencies. For March, AB worked 455 hours for Massive Airframes and 677 hours for Gigantic Drydocks. AB bills clients at the rate of $513 per hour; labor cost for its professional staff is $210 per hour. Overhead costs in March totaled $41,690. Overhead is applied to clients at $41 per labor-hour. In addition, AB had $199, 100 in marketing and administrative costs. All transactions are on account. All services were billed. Transaction Description (a) (b) neord Labor cost plied rvice Overhead c) (d) Record Cost of services billed Record Actual Service Overhead Required a. Show labor and overhead cost flows through T-accounts. Wages Payable Work-In-Process Beg. bal. Beg. bal. End, bal. End. bal. Cost of Services Billed Service Overhead Control Beg. bal. Beg. bal. End. bal. End. bal. Applied Service O.H. Beg. bal. End. bal. b. Prepare an income statement for the company for March. ALLOCATION BUSTERS Income Statement For the Month Ended March 31

Answer 1

a)

WAGES PAYABLE
Beginning balance	0	0
	0	237720	a(wages incurred) [(455+677=1132Hours *210]
Ending balance	0	237720

Work in process
Beginning balance	0	0
a	237720	284132	c
b	46412
Ending balance	0	0

Cost of services billed
Beginning balance	0	0
c	284132	4722	e
Ending balance	279410	0

Service overhead control
Beginning balance	0	0
c	41690	41690	d
Ending balance	0	0

Applied service OH
Beginning balance	0	0
d	41690	46412	b
e	4722
Ending balance	0	0

2)

ALLOCATION BUSTERS INCOME STATEMENT FOR THE MONTH ENDED MARCH 31
Revenue (1132*513)		580716
cost of services provided	284132
Overapplied overhead	(4722)	(279410)
Gross margin		301306
marketing and administrative cost		(199100)
Net income		102206

Answer 2

(455+677)*210= 237,720

(455+677)*41= 46,412

(455+677)*513= 580,716

Answer 3

46,412-41,690= 4,722