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 668 hours for Gigantic Drydocks. AB bills clients at the rate of $510 per hour; labor cost for its professional staff is $210 per hour. Overhead costs in March totaled $41,830. Overhead is applied to clients at $43 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) | Record Labor cost |
(b) | Record Applied Service Overhead |
(c) | Record Cost of services billed |
(d) | Record Actual Service Overhead |
Required:
a. Show labor and overhead cost flows through T-accounts.
b. Prepare an income statement for the company for March.
Ques a
a. | ||||||||
Wages payable | Work in process | |||||||
beg bal | beg bal | |||||||
235830 | (a) | (a) | 235830 | 284119 | ('c) | |||
end bal | 235830 | (b) | 48289 | |||||
end bal | 0 | |||||||
Cost of service billed | ||||||||
beg bal | Service overhead control | |||||||
('c) | 284119 | 6459 | Closing | beg bal | ||||
41830 | 41830 | Closing | ||||||
end bal | 277660 | |||||||
end bal | 0 | |||||||
Applied service O.H | ||||||||
beg bal | ||||||||
Closing | 48289 | 48289 | (b) | |||||
end bal | 0 | |||||||
Ques b
b. | ||
income statement | ||
Sales revenue | 572730 | |
cost of service billed | 284119 | |
less:overapplied OH | 6459 | 277660 |
Gross margin | 295070 | |
marketing and administration | 199100 | |
operating profit | 95970 |
WORKING
Massive frames | Gigantic drydocks | total | |
worked(a) | 455 | 668 | |
price(b) | 510 | 510 | |
labor cost© | 210 | 210 | |
billings(a*b) | 232050 | 340680 | 572730 |
cost(a*c) | 95550 | 140280 | 235830 |
applied overheads | 19565 | 28724 | 48289 |
(a*d) | |||
overheads | 41830 | ||
applied(d) | 43 | ||
marketing | 199100 |
Allocation Busters (AB) is a dispute mediation firm offering services to firms in disputes about cost...
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