Traditional Costing Example

Traditional Costing Example - professional labor cost...

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TRADITIONAL COSTING EXAMPLE Assume that the public accounting firm of Check and Doublecheck prepares the condensed annual  budget shown in Illustration  17-14 Condensed annual budget of a service firm under traditional  costing Under  traditional costing,  direct labor is the professional service performed, and it is the basis for  overhead application to each audit job. To determine the operating income earned on any job, Check  and Doublecheck applies overhead at the rate of 200% of actual direct professional labor costs  incurred. For example, assume that Check and Doublecheck records $70,000 of actual direct 
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Unformatted text preview: professional labor cost during its audit of Plano Molding Company, which was billed an audit fee of $260,000. Under traditional costing, using 200% as the rate for applying overhead to the job, Check and Doublecheck would compute applied overhead and operating income related to the Plano Molding Company audit as shown in Illustration 17-15 . 17-15 Overhead applied under traditional costing system This example, under traditional costing, uses only one direct cost item and one overhead application rate....
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