Engelhardt, Inc., a law consulting firm, has been using a single predetermined o
ID: 2342596 • Letter: E
Question
Engelhardt, Inc., a law consulting firm, has been using a single predetermined overhead allocation rate with direct labor hours as the allocation base to allocate overhead costs. The direct labor rate is $40 per hour. Ted Heath, the president of Engelhardt, decided to develop an ABC system to accurately allocate the indirect costs. He identified two activities related to the total indirect costs-travel and information technology (IT) support. The other relevant details are given below: Estimated quantity Estimated costs of allocation base Activity Travel IT Support ect labor hours Total Allocation base Miles driven $77,000 55,000 $132,000.00 3,500 miles 1,250 DLHr During the current month, Engelhardt's consultants spent 150 labor hours for Cunningham, Inc. The job required the professionals to travel 400 miles in total. Determine the total cost of the consulting job using the ABC system. O A. $6,600 B. $6,000 O C. $1,760 D. $21,400Explanation / Answer
Correct Answer---$15,400
Calculations
Activity
Cost Drivers
Total Activity Amount (A)
Level of Activity (B)
Activity Rate (C=A/B)
Travel
Number of Miles driven
$ 77,000.00
3500.00
$ 22.00
Per Mile
IT Support
Number of Direct labor Hours
$ 55,000.00
1250.00
$ 44.00
Per Direct Labor Hour
$ 132,000.00
Statement of Cost applied as per ABC Syetem
Activity rate(A)
Activity Driver Incurred (B)
Overhead Assigned (C=A*B)
Travel
$ 22.00
400
$ 8,800.00
IT Support
$ 44.00
150
$ 6,600.00
Total Overheads applied
$ 15,400.00
It also seems that correct option was not listed in the options provided. All the options provided are incorrect. Correct Answer is $15,400.
Activity
Cost Drivers
Total Activity Amount (A)
Level of Activity (B)
Activity Rate (C=A/B)
Travel
Number of Miles driven
$ 77,000.00
3500.00
$ 22.00
Per Mile
IT Support
Number of Direct labor Hours
$ 55,000.00
1250.00
$ 44.00
Per Direct Labor Hour
$ 132,000.00
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