Overhead under Job-Order Costing in a Service Organization
PPGV provides auditing services to midmarket clients.
PPGV developed the following estimates for the current year.
Direct Labor Hours 70000
Direct Labor Cost $2,800,000
Overhead $1,500,000
A. Compute the predetermined overhead rate based on
1. direct labor hours
2. direct labor cost
B. Assume the following jobs were worked during the year:
Job Labor Dollars Labor hours
100 $1,520,000 40000
200 $820,000 20000
300 $460,000 10000
Compute the amount of overhead that would have been applied to each of these jobs using various overhead rates you computed in part A.
C. Explain why the amount of overhead applied to each job varies with the activity base.
D. The reason why some jobs have a higher billing rate is because more senior people are working on the job. Assume the primary overhead cost is secretarial assistance. If the senior level people require more secretarial work than their subordinates do, which of these two overhead rates better reflects this situation? Explain…