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Bridges and Lloyd, an accounting firm, provides consulting and tax planning services. For many years, the firm's total administrative cost (currently $283,000) has been allocated
Bridges and Lloyd, an accounting firm, provides consulting and tax planning services. For many years, the firm's total administrative cost (currently $283,000) has been allocated to services on the basis of billable hours to clients. A recent analysis found that 65% of the firm's billable hours to clients resulted from tax planning services, while 35% resulted from consulting services. The firm, contemplating a change to activity-based costing, has identified three components of administrative cost, as follows: Staff Support In-house computing charges Miscellaneous office costs $191,000 61,000 31,000 $283,000 Total A recent analysis of staff support found a strong correlation between the number of staff personnel and the number of clients served (consulting, 20; tax planning, 60). In contrast, in-house computing and miscellaneous office cost varied directly with the number of computer hours logged and number of client transactions, respectively. Consulting consumed 35% of the firm's computer hours and had 20% of the total client transactions. If Bridges and Lloyd switched from its current accounting method to an activity-based costing system, the amount of administrative cost chargeable to consulting services would: Multiple Choice decrease by $23,750. increase by $23,750. decrease by $33,300. change by an amount other than those listed. change, but the amount cannot be determined based on the information presented
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