Security Pension Services helps clients to set up and administer pension plans that are in compliance with tax laws and regulatory requirements. The firm uses a job-order costing system in which overhead is applied to clients' accounts on the basis of professional staff hours charged to the accounts. Data concerning two recent years appear below:
- Estimated professional staff hours to be charged to clients' accounts 4,600
- Estimated overhead cost $310,500
- Professional staff hours available 6,000
- Estimated professional staff hours to be charged to clients' accounts 4,500
- Estimated overhead cost $310,500
- Professional staff hours available 6,000
"Professional staff hours available" is a measure of the capacity of the firm. Any hours available that are not charged to clients' accounts represent unused capacity. All of the firm's overhead is fixed.
Requirement 1:
Marta Brinksi is an established client whose pension plan was set up many years ago. In both 2008 and 2009, only 2.5 hours of professional staff time were charged to Ms. Brinksi's account. If the company bases its predetermined overhead rate on the estimated overhead cost and the estimated professional staff hours to be charged to clients, how much overhead cost would have been applied to Ms. Brinksi's account in 2008 and in 2009?
Requirement 2:
Suppose that the company bases its predetermined overhead rate on the estimated overhead cost and the estimated professional staff hours to be charged to clients. Also suppose that the actual professional staff hours charged to clients' accounts and the actual overhead costs turn out to be exactly as estimated in both years. By how much would the overhead be underapplied or overapplied in 2008 and in 2009?
Requirement 3:
If the company bases its predetermined overhead rate on the professional staff hours available, how much overhead cost would have been applied to Ms. Brinksi's account in 2008 and in 2009?