Question

Financial Planning Partners Inc., employs 12 full-time CPAs and 10 paraprofessionals. Direct and indirect costs are applied on a professional labor-hour basis that includes both attorney and paraprofessional hours. Following is information for 2018: Budget Actual Indirect costs $300,000 $309,000 Annual salary of each attorney $118,000 $128,000 Annual salary of each paraprofessional $31,500 $32,500 Total professional labor-hours 50,000 dlh 56,000 dlh When using a normal costing system, year-end accounting records will show that indirect costs are __________.

Answer 1

Answer:

At the year end the accounting records will show that the indirect cost are over allocated.

Explanation:

First of all let us see what information has been given to us in the question,

                                         Budget                                 Actual

INDIRECT COST            $3,00,000                             $309,000

LABOR HOUR                 50,000 dlh                             56,000 dlh

For us the salary of both attorney and paraprofessional is not of use to calculate the indirect cost for the year end.

So first step here would be to calculate the cost per hour of each professional, which can be taken out by using the formula

 \frac{BUDGETED INDIRECT COST}{TOTAL BUDGETED WORKING LABOR HOUR}

\frac{\$3,00,000}{50,000} = \$6

so the cost per hour for each professional is $6,

next step is to multiply the cost per hour by the actual labor working hours ,

        $6 x 56,000 = $3,36,00

but we the budget given in the question is $3,00,000 and the indirect cost that we have calculated is $3,36,000, so from this observation we can say that the indirect cost at the end of the accounting records would be over allocated.