Q26E

Question

Question: Refer to Exercises E19-24 and E19-25. Suppose Western’s direct labor rate was $280 per hour. The Halbert engagement used the following resources last month:

Allocation Base Halbert

Direct labor hours 170

Pages 310

Applications used 80

Requirements

1. Compute the cost assigned to the Halbert engagement, using the ABC system.

2. Compute the operating income or loss from the Halbert engagement, using theABC system.

Step-by-Step Solution

Verified

Answer

Total Cost:$97,920

Operating Loss:$21,760

1Step-by-Step-Solution Step1: Cost assigned to Halbert

$D i r e c t l a b o r c o s t = T o t a l d i r e c t l a b o r h o u r s \times L a b o r r a t e = 170 \times $ 280 = $ 47, 600 D o c u m e n t a t i o n P r e p r a t i o n C o s t = P r e d e t e r m i e n d o v e r h e a d a l l o c a t i o n r a t e \times N o . o f p a g e s = $ 50 \times 310 = $ 15, 500 T S C o s t = P r e d e t e r m i e n d o v e r h e a d a l l o c a t i o n r a t e \times N o . o f a p p l i c a t i o n s u s e d = $ 210 \times 80 = $ 16, 800$

$T r a i n i n g C o s t = P r e d e t e r m i e n d o v e r h e a d a l l o c a t i o n r a t e \times N o . o f d i r e c t l a b o r h o u r s = $ 106 \times 170 = $ 18, 020 T o t a l C o s t a s s i g n e d t o H a l b e r t = D i r e c t L a b o r C o s t + D o c u m e n t a t i o n C o s t + I T S C o s t + T r a i n i n g C o s t = $ 47, 600 + $ 15, 500 + $ 16, 800 + $ 18, 020 = $ 97, 920$

2Step 2: Operating Income/loss from Halbert

$S e r v i c e r e v e n u e f r o m H a l b e r t = T o t a l D i r e c t l a b o r c o s t \times \frac{160}{100} = $ 47, 600 \times \frac{160}{100} = $ 76, 160 O p e r a t i n g I n c o m e / l o s s = S e r v i c e r e v e n u e - T o t a l C o s t = $ 76, 160 - $ 97, 920 = - $ 21, 760$

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