Activity-Based Costing Miami Valley Architects Inc. Provides a range of engineering and architectural consulting services through its three branch offices in Columbus, Cincinnati, and Dayton, Ohio. The company allocates resources and bobuses to the three branches based on the net income of the period. The results of the firm's performance for the year 2006 follows ($ in the thousands): Miami Valley accumulates overhead items in one overhead pool and allocates it no the branches based on direct labor dollars. For 2006, this predetermined overhead rate was $1, 859 for every direct labor dollar incurred by an office. The overhead pool includes rent, depreciation, and taxes regardless of which office incurred the expense. Some branch managers complain that the overhead allocation method forces them o absorb a portion of the overhead incurred by the other offices. Management is concerned with the 2006 operating results. During a review of overhead expenses, management noticed that many overhead items were clearly not correlated to the movement in direct labor dollars as previously assumed. Management decided that applying overhead based on activity-based costing and direct tracing wherever possible should provide a more accurate picture of the profitablity of each branch. An analysis of the overhead revealed that the following dollars for rent, utilities, depreciation, and taxes could be traced directly to the office that incurred the overhead ($ in thousands): Activity pools and their corresponding cost drivers were determined from the accounting records and staff surveys as follows: Activity-Based Costing Miami Valley Architects Inc. Provides a range of engineering and architectural consulting services through its three branch offices in Columbus, Cincinnati, and Dayton, Ohio. The company allocates resources and bobuses to the three branches based on the net income of the period. The results of the firm's performance for the year 2006 follows ($ in the thousands): Miami Valley accumulates overhead items in one overhead pool and allocates it no the branches based on direct labor dollars. For 2006, this predetermined overhead rate was $1, 859 for every direct labor dollar incurred by an office. The overhead pool includes rent, depreciation, and taxes regardless of which office incurred the expense. Some branch managers complain that the overhead allocation method forces them o absorb a portion of the overhead incurred by the other offices. Management is concerned with the 2006 operating results. During a review of overhead expenses, management noticed that many overhead items were clearly not correlated to the movement in direct labor dollars as previously assumed. Management decided that applying overhead based on activity-based costing and direct tracing wherever possible should provide a more accurate picture of the profitablity of each branch. An analysis of the overhead revealed that the following dollars for rent, utilities, depreciation, and taxes could be traced directly to the office that incurred the overhead ($ in thousands): Activity pools and their corresponding cost drivers were determined from the accounting records and staff surveys as follows