Question
Bridges and Lloyd, an accounting firm, provides consulting and tax planning services. For many years, the firm's total administrative cost (currently $265,000) 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 $265,000) 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 | $ | 185,000 | |
In-house computing charges | 55,000 | ||
Miscellaneous office costs | 25,000 | ||
Total | $ | 265,000 | |
A recent analysis of staff support found a strong correlation between the number of staff personnel and the number of clients served (consulting, 15; 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 30% 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 $34,250.
-
increase by $34,250.
-
decrease by $43,500.
-
change by an amount other than those listed.
-
change, but the amount cannot be determined based on the information presented.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started