Question

Application of Overhead The Meyers CPA firm has the following overhead budget for the year: Overhead Indirect materials Indirect labor Depreciation-Building Depreciation-Furniture Utilities Insurance Property taxes Other expenses $ 300,000 1,600,000 293,000 25,000 285,000 34,000 48,000 135,000 $2,720,000 Total The firm estimates total direct labor cost for the year to be $1,700,000. The firm uses direct labor cost as the cost driver to apply overhead to clients During January, the firm worked for many clients, data for two of them follow Gargus account Direct labor $2,500 Feller account Direct labor $8,500 Required 1. Compute the firm's budgeted overhead rate 2. Compute the amount of overhead to be charged to the Gargus and Feller accounts using the predetermined overhead rate calculated in requirement 1 3. Compute total job cost for the Gargus account and the Feller account.

Answer 1

1. Computation of budgeted overhead rate Budgeted overhead $2,720,000 Budgeted overhead rate -1.6 times (or) 160% of direct labor cost budgeted direct labor cost $1,700,000 2. Computation of amount of overhead to be charged to the Gargus and Fellar accounts: Overhead to be charged to the Gargus account: Actual direct labor cost incurred for the client Gargus -$2,500 Predetermined overhead rate Overhead to be charged to the Gargus accountctual direct labor cost incurred x Predetermined overhead rate 1.6 times (or) 160% of direct labor cost $2,500 x 160% $4,000 Overhead to be charged to the Fellar account: Actual direct labor cost incurred for the client Feller Predetermined overhead rate Overhead to be charged to the Feller account $8,500 1.6 times (or) 160% of direct labor cost -Actual direct labor cost incurred x Predetermined overhead rate $8,500 x 160% $13,600

3. Computation of total cost for the Gargus and Fellar accounts Gargus account $2,500 $4,000 $6,500 Feller account Direct labor cost $8,500 $13,600 $22,100 Overhead charged [Refer 2 above] Total cosit