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D Scenario 1 I R&R is a firm of tax accountants whose labor hours follow a highly seasonal pattern with April being the month that
D Scenario 1 I R&R is a firm of tax accountants whose labor hours follow a highly seasonal pattern with April being the month that accountants book the most labor hours. R&R allocates the overhead (OH) it charges to individual jobs based on labor hours. R&R has both variable OH costs and fixed OH costs. Variable OH costs (such as supplies, power, indirect support labor) vary with the quantity of the cost-allocation base (professional labor hours charged). Fixed OH costs (deprecation, general administrative support) do not vary with short-run fluctuations in the quantity of the cost- allocation base: | A junior accountant noticed that OH costs were allocated to individual jobs at the rate of $31.25 in the busiest month causing the total bill for the same work to be significantly cheaper in April then in the following month of May where OH costs are allocated at $87.50. This means that $100 worth of tax work costs $131.25 in April when everyone is very busy but that same work costs $187.50 in May when there is plenty of idle capacity. April timesheets totaled 3,200 labor hours worked but when tax season was over in May there was not much work to do so timesheets only totaled 800 labor hours. What is R & R doing wrong and how can we fix this from what we know about allocating OH costs?
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