Question

At Lamply and Associates, LLP overhead is assigned to clients based upon direct labor hours. At the beginning of the year, estimated overhead costs were $156,000 and estimated direct labor hours were 20,800. Actual overhead costs amounted to $166,400 and 20,904 direct labor hours were worked. How much overhead should be applied to a client whose file notes 120 direct labor hours during the year?

Answer 1

To calculate the overhead to be applied to a client's account based on direct labor hours at Lamply and Associates, LLP,

the predetermined overhead rate of $7.50 per labor hour is multiplied by the actual direct labor hours worked for the client, resulting in $900 of overhead applied to the client's account for the year.

Step-by-step explanation:

The student is asking about how to calculate the overhead to be applied to a client's account based on the number of direct labor hours worked. Lamply and Associates, LLP uses a predetermined overhead rate based on estimated figures provided at the beginning of the year.

To determine the overhead applied, the estimated overhead rate per hour must be calculated first and then multiplied by the actual direct labor hours worked for the client.

First, calculate the predetermined overhead rate: Estimated Overhead Costs ÷ Estimated Direct Labor Hours = $156,000 ÷ 20,800 hours = $7.50 per labor hour.

Next, apply this rate to the actual direct labor hours for the client: Predetermined Overhead Rate x Actual Direct Labor Hours for Client = $7.50 x 120 hours = $900.

Therefore, the overhead that should be applied to the client's account for the year is $900.