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

Question

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:

Activity Allocation base Estimated costs Estimated quantity
of allocation base
Travel Miles driven $77,000 3,500 miles
IT Support Direct labor hours 55,000 1,250 DLHr
Total $132,000.00

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. (Round any intermediate calculations to the nearest cent and your final answer to the nearest dollar.)
A) $6,000
B) $1,760
C) $6,600
D) $21,400

Answer 1

D .D)
Travel:

Predetermined overhead allocation rate = Total estimated overhead costs / Total estimated quantity of the overhead allocation base = $77,000 / 3,500 miles = $22.00 per mile

Total cost for travel = $22.00 per mile x 400 miles = $8,800.00

IT Support:
Predetermined overhead allocation rate = Total estimated overhead costs / Total estimated quantity of the overhead allocation base = $55,000 / 1,250 direct labor hours = $44.00 per DLHr

Total cost for IT support = $44.00 per DLH x 150 hours = $6,600.00
Direct labor cost = $40 x 150 hours = $6,000

Total cost of job:
Travel $8,800.00
IT Support $6,600.00
Direct Labor $6,000.00
Total $21,400