Question
DolphinCorp is an old-school consulting firm that wants to move from traditional methods for apportioning overhead costs to activity-based costing of overhead. Last year, they
DolphinCorp is an old-school consulting firm that wants to move from traditional methods for apportioning overhead costs to activity-based costing of overhead. Last year, they generated $5 million in revenue against $2 million in direct costs and $1 million in overhead. Traditionally, on a project, they would simply mark up the estimated direct costs by the ratio of overhead to direct costs.
As they move to activity-based costing, their accounting team has identified two main cost pools, administration and marketing. Administration costs are driven by the time senior partners spend on a project (valued at $190 an hour of partner time), while marketing costs are driven by total revenue from a project (valued at $0.10 per dollar of revenue earned).
One of the partners just won a contract worth $50,582 in total revenue. The firm estimated it would take $27,002 worth of direct labor and 3 hours of partner time doing project administration.
What is the *difference* in overhead costs on this project between the traditional and activity-based costing methods? (Hint: solve for the traditional overhead cost, then the activity-based, then subtract the latter from the former).
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