Financial Planning Partners Inc., employs 12 fulltime CPAs and 10 paraprofession
ID: 2593174 • Letter: F
Question
Financial Planning Partners Inc., employs 12 fulltime CPAs and 10 paraprofessionals. Direct and indirect costs are applied on a professional laborhour
basis that includes both attorney and paraprofessional hours. Following is information for 2018:
Budget
Actual
Indirect costs
$310,000
$296,000
Annual salary of each attorney
$101,000
$111,000
Annual salary of each paraprofessional
Total professional laborhours
$31,000
50000dlh
$32,000
55000dlh
When using a normal costing system, yearend accounting records will show that indirect costs are ________
A.perfectly allocated
B.underallocated
C.overallocated
D.within budget
Budget
Actual
Indirect costs
$310,000
$296,000
Annual salary of each attorney
$101,000
$111,000
Annual salary of each paraprofessional
Total professional laborhours
$31,000
50000dlh
$32,000
55000dlh
When using a normal costing system, yearend accounting records will show that indirect costs are ________
A.perfectly allocated
B.underallocated
C.overallocated
D.within budget
Explanation / Answer
C.Over allocated:
Budgeted indirect costs: $310,000
Total professional labor hours : 50000 dlh
cost per hour : 310000/50000 = $6.2
when applied to actual labor hour, indirect costs will be $6.2*55000 = 341000
Actual indirect cost : $300,000 < 341000
Hence it is over allocated
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