Chapter 19: Q26E (page 1073)

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.

Short Answer

Expert verified

Total Cost:$97,920

Operating Loss:$21,760

Step by step solution

Step-by-Step-SolutionStep1: 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$

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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Short Answer

Step by step solution

Step-by-Step-SolutionStep1: Cost assigned to Halbert

Operating Income/loss from Halbert

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