Allocation Busters (AB) is a dispute mediation firm offering services to firms in disputes about cost allocations with government agencies. For March, AB worked 440 hours for Massive Airframes and 660 hours for Gigantic Drydocks. AB bills clients at the rate of $500 per hour; labor cost for its professional staff is $200 per hour. Overhead costs in March totaled $42,000. Overhead is applied to clients at $40 per labor-hour. In addition, AB had $200,000 in marketing and administrative costs. All transactions are on account. All services were billed. Transaction Description (a) Record Labor cost (b) Record Applied Service Overhead (c) Record Cost of services billed (d) Record Actual Service Overhead Required: a. Show labor and overhead cost flows through T-accounts. b. Prepare an income statement for the company for March.
Allocation Busters (AB) is a dispute mediation firm offering services to firms in disputes about cost allocations with government agencies. For March, AB worked 440 hours for Massive Airframes and 660 hours for Gigantic Drydocks. AB bills clients at the rate of $500 per hour; labor cost for its professional staff is $200 per hour. Overhead costs in March totaled $42,000. Overhead is applied to clients at $40 per labor-hour. In addition, AB had $200,000 in marketing and administrative costs. All transactions are on account. All services were billed. Transaction Description (a) Record Labor cost (b) Record Applied Service Overhead (c) Record Cost of services billed (d) Record Actual Service Overhead Required: a. Show labor and overhead cost flows through T-accounts. b. Prepare an income statement for the company for March.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Allocation Busters (AB) is a dispute mediation firm offering services to firms in disputes about cost allocations with government agencies. For March, AB worked 440 hours for Massive Airframes and 660 hours for Gigantic Drydocks. AB bills clients at the rate of $500 per hour; labor cost for its professional staff is $200 per hour. Overhead costs in March totaled $42,000. Overhead is applied to clients at $40 per labor-hour. In addition, AB had $200,000 in marketing and administrative costs. All transactions are on account. All services were billed.
| Transaction | Description |
| (a) | Record Labor cost |
| (b) | Record Applied Service Overhead |
| (c) | Record Cost of services billed |
| (d) | Record Actual Service Overhead |
Required:
a. Show labor and overhead cost flows through T-accounts.
b. Prepare an income statement for the company for March.
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