Port Accounting performs two types of services, Audit and Tax.Port's overhead costs consist of computer support, $240,000; and legal support, $120,000.Information on the two services is: $\begin{array}{lrr}&\text { Audit } &\text{Tax}\
\text { Direct labor cost } & \$ 50,000 & \$ 100,000 \
\text { CPU minutes } & 40,000 & 10,000 \
\text { Leqal hours used } & 200 & 800
\end{array}$
-Overhead applied to audit services using traditional costing is

Question

Port Accounting performs two types of services, Audit and Tax.Port's overhead costs consist of computer support, $240,000; and legal support, $120,000.Information on the two services is: $\begin{array}{lrr}&\text { Audit } &\text{Tax}\
\text { Direct labor cost } & \$ 50,000 & \$ 100,000 \
\text { CPU minutes } & 40,000 & 10,000 \
\text { Leqal hours used } & 200 & 800
\end{array}$ 
-Overhead applied to audit services using traditional costing is

Quizplus · Accepted Answer

In traditional costing, overhead is applied based on direct labor cost. The total direct labor cost is $150,000 ($50,000 for Audit + $100,000 for Tax). The overhead costs are $360,000 ($240,000 for computer support + $120,000 for legal support). The overhead rate is $360,000 / $150,000 = 2.4. Therefore, overhead applied to Audit is 2.4 * $50,000 = $120,000.

Port Accounting Performs Two Types of Services, Audit and Tax