Midtown Advertising Agency in Cincinnati, Ohio. This small ad agency has two managing partners who pay themselves annual salaries of $100,000 each, and an artistic staff of six people who each earn $50,000 per year. Fringe benefits for these professionals average 42 percent of their compensation. So Midtown Advertising Agency's direct professional labor budget is as follows Partner salaries Partner benefits (42%) $200,000 84,000 Total partner $284,000 compensation Artistic staff salaries Artistic staff benefits $300,000 126,000 (42%) Total artistic staff compensation $426,000 Midtown's accountant has estimated that one-third of the budgeted overhead cost is incurred to support the ad agency's two partners, and two-thirds of it goes to support the artistic staff. During May, Midtown Advertising Agency completed an advertising project for Super Scoop Ice Cream Company. The contract required $1,800 in direct material, $1,200 of partner direct professional labor, and $2,000 of artistic staff direct professional labor Overhead is assigned to each ad contract at the rate of 89 percent of partner direct professional labor plus 118 percent of artistic staff direct labor. The total cost of the contract is computed as follows $1,800 1,200 Direct material Direct professional labor Direct professional labor Applied overhead (partner) 2,000 (artistic staff) Partner support ($1,200 x 1,068 89%) Artistic staff support ($2,000 x 2,360 118%) 8,428 Total cost The ad agency's annual overhead budget, which totals $756,000 (which includes the costs of the support staff, artistic and photographic supplies, office operation, utilities, rent, insurance, advertising, vehicle maintenance and depreciation.) appears in the illustration of overhead application below: MIDTOWN ADVERTISING AGENCY Annual Overhead Budget For the Year 20x6 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year Support staff Receptionist Secretarial Accounting Custodial Support staff benefits $ 8,000 8,0008,000 8,000 32,000 17,50070,000 10,00040,000 7,250 29,000 17,10068,400 40,000 160,000 0,000 120,000 17,500 10,000 7,250 17,100 40,000 30,000 17,500 10,000 7,250 17,100 40,000 30,000 17,500 10,000 7,250 17,100 40,000 30,000 Artistic supplies Photographic supplies Office: Computer Photocopying Office supplies Postage 5,000 3,750 4,500 5,000 3,750 4,500 5,000 3,750 5,000 20,000 3,750 15,000 4,500 18,000 525 2,100 525 Utilities: Electricity Heat/air conditioning Internet access Cable TV Telephone Trash collection Other 3,250 4,000 375 500 3,250 4,000 375 3,250 4,000 3,250 13,000 4,00016,000 1,500 500 2,000 775 3,100 600 2,400 2,500 12,500 50,000 3,750 15,000 5,000 20,000 1,0004,000 775 Building rent Insurance Advertising Vehicle maintenance Depreciation 12,500 3,750 5,000 1,000 12,500 3,750 5,000 1,000 12,500 3,750 1,000 3,000 5,000 Equipment Vehicles 3,000 12,000 5,000 20,000 5,00020,000 S189,000 189,000 189,000189,000 $756,000 3,000 5,000 5,000 3,000 Other Total overhead Suppose the firm used a single cost driver, total staff compensation, to apply overhead costs to each ad contract. Exercise 3-41 Part 3 3. Recalculate the applied overhead for the Super Scoop Ice Cream Company contract. plied overhead