Dillani, Inc is a consulting firm that offers optimal legal solutions
It allocates indirect costs using a single predetermined overhead allocation rate with direct labor hours as the allocation base. The estimated indirect costs for this year amount to $200,000. The company is expected to work 8,000 direct labor hours during the year. The direct labor rate is $300 per hour. Clients are billed at 120% of direct labor cost. Last month, Dillani's consultants spent 170 hours on Davenport, Inc Calculate the operating income from Davenport.
A) $51,195
B) $51,000
C) $164,333
D) $5,950
D .D) Predetermined overhead allocation rate = Total estimated overhead costs / Total estimated quantity of the overhead allocation base = $200,000 / 8,000 direct labor hours = $25.00 per DL hour
Revenue ($300 x 170 hours x 120%) $61,200
Direct labor (170 hours x $300 ) (51,000 )
Indirect costs (170 hours x $25.00 ) (4,250 )
Total costs $5,950
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