Q14SE_b. - Horngren'S Financial And Managerial Accounting

Question

Question: Using job order costing in a service company

Assume that Roth’s accountants are expected to work a total of 8,000 direct labor hours in 2018. Roth’s estimated total indirect costs are $96,000 and the allocation base used is direct labor hours.

Requirements

2. What indirect costs will be allocated to Client 507 if Jack Smith, an accountant at Roth Accounting, works 15 hours to prepare the financial statements?

Step-by-Step Solution

Answer

Answer:

The allocated indirect cost to client 507 is $180.

Step 1: Costing system

Costing system is used by the companies to calculate the the costing of the goods manufactured by the company. It can be done either by process costing or by job order costing system.

Step 2: Allocation of indirect cost

$$\begin{gathered} \mathrm{Allocation} \mathrm{of} \mathrm{indirect} \mathrm{cost}=\mathrm{Predetermined} \mathrm{overhead} \mathrm{allocation} \mathrm{rate}\times \mathrm{Actual} \mathrm{working} \mathrm{hours} \\ =\$12\times 15 \\ =\$180 \end{gathered}$$