Question 3 (10 Marks)

McKenna Collins LLP public accounting firm employs 10 full-time professionals who provide services to clients. All professional labour compensation is traced directly to clients on a per professional labour-hour basis. Any other costs are included in a single indirect-cost pool (same as overhead) and allocated to individual clients according to billable professional labour-hours.

Operating costs and data for the year included the following:

overhead (inderect) $11000,000(estimated) 1,200,000(actual)

Number of billable professional labor-hour 40,000(estimated) 50,000(actual)

total professional compensation $750,000(estimated) 750,000(actual)

Required:

a. By how much, if any, was the overhead cost underapplied or overapplied? (4 Marks)

b. Prepare a summary journal entry to close any underapplied or overapplied overhead cost to a Cost of Services Provided account. (2 Marks)

c. Explain qualitatively and quantitatively (in as much detail as possible) the source(s) of any underapplied or overapplied overhead cost.(4 Marks)