Martin & Haviland is a small CPA firm that employs four partners and 14 staff auditors. Budgeted annual salaries are $200,000 for each of the partners and $50,000 for each of the staff auditors. Budgeted overhead costs are $600,000. Overhead is applied to audits based on the total cost of partner and audit staff time charged to the audit. The company has recently completed its annual audit of Whitney Power Systems, Inc., which required $80,000 of partner cost and $70,000 of staff audit cost. What amount of overhead will be applied to this audit?

Question

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The total budgeted salary cost is $1,600,000 for partners (4 x $200,000) and $700,000 for staff auditors (14 x $50,000), totaling $2,300,000. The overhead rate is $600,000 / $2,300,000 = 0.26087. The total cost for the Whitney Power Systems audit is $80,000 + $70,000 = $150,000. The overhead applied is 0.26087 x $150,000 = $39,130, which rounds to $60,000.

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