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Overhead under Job-Order Costing in a Service Organization

PPGV provides auditing services to midmarket clients. PPGV developed the following estimates for the current year.
A. Compute the predetermined overhead rate based on:
1. direct labor hours
2. direct labor cost

B. Compute the amount of overhead that would have been applied to each of these jobs using various overhead rates you computed in part A

C. Explain why the amount of overhead applied to each job varies with the activity base.

D. The reason why some jobs have a higher billing rate is because more senior people are working on the job. Assume the primary overhead cost is secretarial assistance. If the senior level people require more secretarial work than their subordinates do, which of these two overhead rates better reflects this situation? Explain

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Please find a detailed step by step solution below. For a better formatted solution, please check the attached word file.

Pre-determined Overhead Rate =

Pre-determined Overhead Rate (Based on DL Hours) =

Pre-determined Overhead Rate (Based on DL Cost) =

B)

For job 100, Applied Overhead based on Labor Dollars = $1,520,000 × $0.54 = $814,285.71

Please note that actually the overhead rate is not $0.54, the actual rate ...

Solution Summary

The solution includes an excel sheet with calculations as well as a word file that explains step by step how to work out the following questions:

1) Computing the predetermined overhead rate based on direct labor hours and direct labor cost
2) Computing the amount of overhead that would have been applied to various jobs using the predetermined overhead rates computed in 1 above
3) Explaining why the amount of overhead applied to each job varies with the activity base
4) Which of the predetermined overhead rates better reflects the situation.

$2.19