Question

The partners of Harris and Whelan, attorneys-at-law, decide to implement an activity-based costing system for their firm. They identify the following three cost pools and budgeted amounts for each for the coming year: fringe benefits, $450,000; paralegal support, $250,000; and research support, $650,000. It is deter- mined that the best cost driver for fringe benefits is professional labor dollars ($1,500,000); paralegal support is partner labor hours (4,000); and research support is professional labor hours (20,000). Compute the budgeted overhead rates for each of the three cost pools.

Answer 1

fringe benefits= $0.3 per professional labor dollars

paralegal support= $62.5 per partner labor hours

research support= $32.5 per professional labor hours

Step-by-step explanation:

Giving the following information:

Activity cost pool - activity cost - activity driver

fringe benefits= $450,000 - professional labor dollars ($1,500,000)

paralegal support= $250,000 - partner labor hours (4,000)

research support= $650,000 - professional labor hours (20,000)

We need to use the following formula for each activity cost pool:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

fringe benefits= 450,000/1,500,000= $0.3 per professional labor dollars

paralegal support= 250,000/4,000= $62.5 per partner labor hours

research support= 650,000/20,000= $32.5 per professional labor hours