(Activity-based costing) Miami Valley Architects Inc. provides a wide range of engineering and architectural consulting services through its three branch offices in Columbus, Cincinnati, and Dayton. The company allocates resources and bonuses to the three branches based on the net income reported for the period. The following presents the results of 1997 performance ($ in thousands).

Overhead items are accumulated in one overhead pool and allocated to the branches based on direct labor dollars. For 1997, this predetermined overhead rate was $1,859 for every direct labor dollar incurred by an office. The overhead pool includes rent, depreciation, taxes, and so on, regardless of which office incurred the expense. This method of accumulating costs forces the offices to absorb a portion of the overhead incurred by other offices. Management is concerned with the results of the 1997 performance reports. During a review of the overhead, it became apparent that many items of over¬ head are not correlated to the movement in direct labor dollars as previously assumed. Management decided that applying overhead based on activity-based costing and direct tracing where possible should provide a more accurate picture of the profitability of each branch.
An analysis of the overhead revealed that the following dollars for rent, utilities, depreciation, taxes, and so on, could be traced directly to the office that incurred the overhead ($ in thousands).

a. What overhead costs should be assigned to each branch based on activity- based costing concepts?

b. What is the contribution of each branch before subtracting the results ob¬ tained in part a?

c. What is the profitability of each branch office using activity-based costing?

d. Evaluate the concerns of management regarding the traditional costing tech¬ nique currently used.
(IMA)LO1

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Sales Less: Direct labor Direct materials Overhead Net income COLUMBUS CINCINNATI DAYTON TOTAL $1,500 $1,419 $1,067 $3,986 (382) (317) (317) (1,016) (281) (421) (185) (710) (589) (589) (887) (1,888) $ 127 $ 92 $ (24) $ 195