Answer:
Carlin and Marley
Using activity-based costing system, the amount of administrative cost chargeable to consulting services would be:
= $89,000
instead of $121,500 using the traditional method.
Explanation:
a) Data and Calculations:
Services provided by the accounting firm = consulting and tax planning
Total administrative cost = $270,000
Traditional allocation basis = billable hours to clients
Services Tax Planning Consulting Total
Traditional cost pool basis:
Billable hours to clients 55% 45% 100%
Activity cost pool bases:
Client base 65% 35% 100%
Computer hours 70% 30% 100%
Total client transactions 80% 20% 100%
Activity Pools Overhead Costs Activity Basis
Staff Support $200,000 Number of clients served
In-house computing charges 50,000 Number of computer hours
Miscellaneous office costs 20,000 Number of client transactions
Total administrative cost = $270,000
Overhead Allocation for each Activity Cost Pool:
Services Total Tax Planning Consulting
Staff Support $200,000 $130,000 $70,000
In-house computing charges 50,000 35,000 15,000
Miscellaneous office costs 20,000 16,000 4,000
Total administrative cost = $270,000 $181,000 $89,000
Traditional costing method:
Billable hours to clients 100% 55% 45%
Amount based on billable hours $270,000 $148,500 $121,500
