Question

A. At the law firm of Kimberly Kanakes and Associates LLP, overhead is assigned to clients based on direct labor hours. At the beginning of the current year, estimated overhead costs were $156,000 and estimated direct labor hours were 20,800. Actual overhead costs for the year amounted to $166,400, and the firm’s attorneys worked 20,904 hours on various client issues. How much overhead cost should be assigned to a client whose file indicates that attorneys worked 120 hours on various client issues?
a. $895.20

b. $900.00

c. $955.20

d. $960.00

B.)Refer to question (9). How much is overhead overapplied or underapplied?

a. $9,620 overapplied

b. $9,620 underapplied

c. $780overapplied
d. $780 underapplied

Answer 1

A. Predetermined overhead rate = Estimated overhead costs/ Estimated direct labor hours

= $156,000/ 20,800

= $7.5 per direct labor hour

Overhead cost assigned to client = Hours spent on various client issues * Predetermined overhead rate

= 120 hours * $7.5

= $900, thus option b is correct.

B. Applied overheads = Predetermined overhead rate * Actual hours worked

= $7.5 * 20904

= $156780

Underapplied overheads = Actual overheads - Applied overheads

= $$166400 - $156780

= $9620 underapplied, thus, option b is correct.