Question

TechMaster is an information technology (IT) consulting company offering services to small firms. TechMaster bills clients for its various services based on the hours its professionals spend. In August, IT professionals billed 955 hours to clients and worked a total of 1,080 hours (the difference includes time for training, preparing bids, and so on, which are considered administrative costs). TechMaster bills clients at the rate of $260 per hour; labor cost for its IT professionals is $90 per hour. Overhead costs in August totaled $51,000. Overhead is applied to clients at $56 per labor-hour. In addition, TechMaster had $71,000 in marketing and administrative costs (including labor time as described). 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 August.

Answer 1