Question : Objective 4.8 1) In the service sector ________. A) direct labor costs : 1212071

Objective 4.8

1) In the service sector ________.

A) direct labor costs are always easy to trace to jobs

B) a budgeted direct-labor cost rate may be used to apply direct labor to jobs

C) normal costing may not be used

D) overhead is generally applied using an actual cost-allocation rate

2) In the service sector, to achieve timely reporting on the profitability of an engagement, a company will use ________.

A) budgeted rates for all direct costs

B) budgeted rates for indirect costs

C) actual costing

D) budgeted rates for some direct costs and indirect costs

3) Luke employs 20 professional cleaners. Budgeted costs total $1,800,000 of which $1,550,000 is direct costs. Budgeted indirect costs are $750,000 and actual indirect costs were $795,800. Budgeted professional labor-hours are 1,000,000 and actual hours were 1,218,000. What is the budgeted direct cost-allocation rate?

A) $1.80 per hour

B) $1.7857 per hour

C) $0.75 per hour

D) $1.55 per hour

4) The budgeted direct-labor cost rate includes ________.

A) budgeted total costs in indirect cost pool

B) budgeted total direct-labor costs in the denominator

C) budgeted total direct-labor costs in the numerator

D) budgeted total direct-labor hours in the numerator

5) The law firm of Smith & Jones has a staff of 30 lawyers and administrative staff. Budgeted total costs of the firm total $4,000,000 of which $2,500,000 is direct-labor costs.  Assuming that the remaining costs are indirect and direct-labor cost is the allocation base, calculate the budgeted indirect cost rate.

A) 38 of direct-labor cost

B) 60% of direct-labor cost

C) 63% of direct-labor cost

D) 160% of direct-labor cost

Answer the following questions using the information below:

A local accounting firm employs 20 full-time professionals. The budgeted annual compensation per employee is $40,500. The average chargeable time is 500 hours per client annually. All professional labor costs are included in a single direct-cost category and are allocated to jobs on a per-hour basis.

Other costs are included in a single indirect-cost pool, allocated according to professional labor-hours. Budgeted indirect costs for the year are $787,500, and the firm expects to have 90 clients during the coming year.

6) What is the budgeted direct labor cost rate per hour?

A) $18.00 per hour

B) $17.50 per hour

C) $4.05 per hour

D) $2,000 per hour

Total hours = 500 × 90 = 45,000 hours

Direct labor cost rate per hour = $810,000 / 45,000 = $18.00 per hour

7) What is the budgeted indirect-cost rate per hour?

A) $1,575.00 per hour

B) $78.75 per hour

C) $18.00 per hour

D) $17.50 per hour

8) If ten clients are lost and the workforce stays at 20 employees, then the direct labor cost rate per hour:

A) $18.00 per hour

B) $17.50 per hour

C) $20.25 per hour

D) $15.00 per hour

Total hours = 200 × 80 = 40,000 hours

Direct cost rate per hour = $810,000 / 40,000 = $20.25 per hour

The direct labor cost rate per hour increased from $18.00 per hour to $20.25 per hour

9) A company may choose to use budgeted rates to allocate direct labor accounts if direct labor costs are difficult to trace to jobs as they are completed.

10) In some variations of normal costing, organizations use budgeted rates to assign direct costs as well as indirect costs to jobs.