Question
Tech Solutions is a consulting firm that uses a job-order costingsystem. Its direct materials consist of hardware and software that itpurchases and installs on behalf
Tech Solutions is a consulting firm that uses a job-order costingsystem. Its direct materials consist of hardware and software that itpurchases and installs on behalf of its clients. The firm's direct laborincludes salaries of consultants that work at the client's job site, andits overhead consists of costs such as depreciation, utilities, andinsurance related to the office headquarters as well as the officesupplies that are consumed serving clients.Tech Solutions computes its predetermined overhead rate annuallyon the basis of direct labor-hours. At the beginning of the year, itestimated that 65,000 direct labor-hours would be required for theperiod's estimated level of client service. The company alsoestimated $487,500 of fixed overhead cost for the coming periodand variable overhead of $0.50 per direct labor-hour. The firm'sactual overhead cost for the year was $505,700 and its actual totaldirect labor was 70,900 hours.
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